A recent interesting phenomenon in the crypto market: macroeconomic developments are showing things that shouldn't happen in a textbook scenario.

The US-Japan interest rate differential has narrowed to its lowest point since 2022, now only 2.09%. Meanwhile, Japanese government bond yields have surged to 2.07%, hitting a new high since 1997. According to conventional financial logic, under these conditions, the yen should experience a strong appreciation, and the USD/JPY exchange rate should decline. But reality has given the market a loud slap — instead, the USD/JPY is rising.

The truth behind this is actually quite harsh. Japan's debt level has reached an extremely dangerous point, exceeding 230% of GDP. Every time the government bond yield climbs by one percentage point, it directly impacts Japan's debt servicing costs. So even if the interest rate differential narrows, the market's real sentiment is: "Japan cannot afford higher interest rates." Investors are voting with their feet — continuing to short the yen and favor the dollar.

Behind this "counterintuitive" rise are three layers of pressure: first, US bond yields remain relatively high, making it still advantageous for the dollar based on the actual interest rate differential; second, the appeal of yen carry trades persists, with operations borrowing yen to buy dollar assets far from stopping; third, the Bank of Japan's stance on rate hikes remains vague, and this cautious attitude fundamentally fails to boost market confidence.

The future direction hinges on three signals: when will the Federal Reserve start a substantial rate cut, whether the Bank of Japan dares to give a real rate hike commitment, and whether Japanese government bond auctions will see a cold spell. One thing is already clear — debt concerns have completely overshadowed traditional exchange rate logic. Everyone is betting on the final outcome of this government bond feast.