Japan’s Cabinet has approved a stimulus package of 21.3 trillion yen (about $135.5 billion) — the largest intervention in the country’s economy since the pandemic.
Following this news, the yen immediately fell to its lowest level against the dollar since January 2025, and the yield on Japan’s 40-year bonds hit a new record, reaching 3.697%.
What’s Included in the Stimulus and Why It’s Needed
The Japanese authorities have three goals: to keep prices in check, revive the economy, and strengthen defense. According to NHK, the package includes payments to regions and energy subsidies. On average, a family will receive about 7,000 yen over three months.
Most of the funds will go to the military. The authorities intend to raise the defense budget to 2% of GDP by 2027. They want to approve the budget by the end of the year, but the coalition only has 231 seats out of 465 in the lower house, so they can’t do it without allies.
Meanwhile, the economy is stalling. In the third quarter, GDP fell by 0.4% — a drop of 1.8% year-on-year and the first decline in a year and a half. Inflation has stayed above 2% for 43 consecutive months, reaching 3% in October.
The government expects the stimulus to boost real GDP by 24 trillion yen, with a total effect of about $265 billion.
But not everyone is enthusiastic. According to Nikkei, more and more experts are questioning whether such measures should be launched outside of crises. On November 20, the cost of five-year CDS on Japanese government bonds jumped to 21.73 bps — the highest in six months. This shows that investors are increasingly doubting the sustainability of government debt.
The Yen Falls, Bond Market in Turmoil
After the package was announced, the yen sharply depreciated, raising questions again: how stable is the currency and will the government intervene? Amid high inflation and a huge budget, the market expects capital outflows despite support attempts. October’s export growth of 3.6% doesn’t change the overall picture.
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Currently in investors’ sights is the yield on 40-year bonds. On Thursday it hit a new record, rising to 3.774%. Usually, such injections lower long-term rates due to increased liquidity, but in this case the opposite happened. Inflation is not retreating, government debt is rising, and this increases tension in the market. It is estimated that every additional percentage point of yield adds about 2.8 trillion yen to annual debt servicing costs.
The situation also affects the carry trade — a strategy where investors borrow yen at low interest and invest abroad. The total volume of such operations is estimated at $20 trillion. If yields continue to rise and the yen starts to strengthen, a mass sell-off of assets could begin. Historically, such exits from the carry trade often coincide with stock index declines. The correlation with S&P 500 drops is about 0.55.
What Does This Mean for Bitcoin?
For the crypto market, this is an ambiguous signal. On one hand, increased liquidity often fuels interest in alternative assets, especially as the national currency weakens. Japanese investors have seen this before: when the yen falls, demand for bitcoin usually rises.
For now, the Bank of Japan is keeping the key rate at 0.5%, but if inflation remains high, a hike is inevitable.
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Analysts call what is happening one of the strongest macro factors in favor of bitcoin at the start of 2026. Japan’s fiscal stimulus, potential Fed policy easing, regular liquidity injections from China, and US Treasury activity — all this creates fertile ground for risk assets to grow.
However, high bond yields could work against it. If there is an exit from the carry trade, institutional investors may start locking in positions en masse, including crypto assets. And the crypto market reacts quickly. It operates 24/7 and is sensitive to any liquidity pressure.
