Global financial markets experienced renewed turbulence during the first full trading week after Thanksgiving, driven by unexpected hawkish signals from the Bank of Japan (BOJ). Risk assets faced broad pressure while safe-haven demand rose.
Japanese government bond futures weakened significantly as markets bet on a potential December rate hike by the BOJ. Governor Kazuo Ueda stated that the committee would "discuss the pros and cons of raising rates," reinforcing hawkish expectations. Following his remarks, the global cryptocurrency market reacted swiftly, with Bitcoin briefly falling below $85,000.
"Bitcoin is no longer solely focused on the Fed—central bank policy shifts worldwide now trigger market volatility," noted BTC Markets analyst Rachael Lucas.
Japan’s 2-year government bond yield surpassed 1% on Monday for the first time in 17 years, while the 10-year yield hit its highest level since 2008. This shift quickly spilled over into global bond markets, pushing the U.S. 10-year Treasury yield up 3 basis points to 4.04%, with European and New Zealand yields also rising.
Market expectations for a BOJ rate hike on December 19 surged from below 25% a week ago to around 80%. Analysts warn that as one of the world’s largest cross-border bond investors, higher domestic rates could prompt Japanese institutional investors to repatriate funds from overseas high-yield bonds—including U.S. Treasuries—and reallocate to domestic assets.
Despite this, U.S. Treasury yields remain range-bound near 4%, as strong expectations of Fed rate cuts this year cap upward momentum. Last week, New York Fed President John Williams suggested potential near-term rate cuts, briefly pushing benchmark yields below this level.
Interest rate markets now price in an 80% chance of another Fed rate cut in December. Expectations intensified over the weekend after former U.S. President Donald Trump indicated he had chosen his next Fed chair nominee, with White House National Economic Council Director Kevin Hassett widely seen as the leading candidate. Sources suggest both Hassett and Trump favor more aggressive rate cuts.
Investors are also awaiting the ISM’s November manufacturing data. Mizuho strategist Evelyne Gomez-Liechti noted that if input prices decline while the overall index improves slightly, "it would reinforce the current bearish pressure as justified."
U.S. stocks opened lower on Monday, with the Nasdaq down 0.67%, the S&P 500 falling 0.52%, and the Dow dropping 0.5%. Meanwhile, safe-haven assets strengthened—the yen rose to around 155.5, while spot gold hit a six-week high of $4,264.61.
Japan’s ultra-low rates have long fueled the global carry trade, where investors borrow cheap yen to invest in higher-yielding risk assets. City Index senior analyst Fiona Cincotta warned that Ueda’s rate hike hints could spark fears of rapid carry trade unwinding: "These concerns have lingered, but Ueda’s comments worsened risk sentiment on Monday."