In a trading room in Tokyo, a seasoned trader, Kenichi Yamamoto, is watching the screens, already past 3 a.m. His eyes are fixed on the real-time market data, yet he feels no sleepiness. The data in front of him flickers— the Japanese 10-year government bond yield curve suddenly steepens, breaking through the 0.25% threshold last night. Looking at these numbers, he ponders between two trading instructions: reduce holdings of U.S. bonds or increase holdings of Japanese bonds?

This late-night decision may seem like just a routine trader’s choice, but it could actually be influencing the flow of global capital. Far away in Washington, financial officials might not yet realize that a silent reallocation of capital is quietly unfolding on the other side of the Pacific.

For decades, the global financial markets have followed a relatively stable logic: Japanese households and businesses deposit their savings into financial institutions, which then buy large amounts of U.S. Treasuries to earn higher returns. The U.S. government benefits from cheap financing, supporting its massive fiscal deficits and worldwide military deployments. This mechanism, to some extent, is the financial backbone of the entire "American governance."

Data shows that Japanese investors hold over $1.3 trillion in U.S. Treasuries, making them one of the largest foreign holders. How significant is this? It means every adjustment in Japanese investors’ portfolios directly impacts the U.S. borrowing costs. Once they start reducing their holdings, the cost of financing U.S. debt will rise.

But now, the situation is changing. The Bank of Japan’s monetary policy is moving toward normalization, breaking the long-standing "zero interest rate" environment. When domestic government bond yields finally offer competitive returns, the tilt in the capital balance becomes inevitable. For Japan’s life insurers and pension funds, the message is clear: why bear exchange rate risks, cross-border regulatory costs, and lower yields to hold U.S. bonds? It’s better to shift funds back home, buy Japanese government bonds—just as stable, with lower risk and higher returns.

This shift in thinking, while seemingly just a minor adjustment in capital allocation, becomes quite significant when scaled to trillions of dollars. Once this trend takes hold, decreasing demand for U.S. Treasuries will gradually push up their yields, further raising U.S. interest rates. The impact on the global liquidity landscape is profound. As the crypto market is highly sensitive to global capital flows and liquidity conditions, such shifts in capital dynamics often trigger chain reactions.