Japan invests 135.5 billion USD to rescue the economy! The yen hits a new low, does Bitcoin benefit or suffer?

Japan Approves $135.5 Billion Economic Stimulus Plan, the Largest Since the COVID-19 Pandemic. The Yen Falls to Its Lowest Level Against the Dollar Since January 2025, and the 40-Year Government Bond Yield Hits a Historic 3.697%, Triggering Concerns Over $20 Trillion Yen Arbitrage Trades. Analysts say that as 2026 approaches, this will be one of the strongest macroeconomic tailwinds for Bitcoin.

Details of Japan’s $135.5 Billion Stimulus and Economic Dilemma

On November 21, the Japanese Cabinet approved a ¥21.3 trillion ($135.5 billion) economic stimulus plan, the largest fiscal intervention since the COVID-19 pandemic. The news immediately pushed the Yen to its lowest level against the dollar since January 2025 and drove the country’s 40-year government bond yield to a record 3.697%.

The plan centers around three major goals: alleviating inflation, promoting strong growth, and strengthening national defense and diplomacy. According to NHK, the plan includes subsidies for local governments and energy subsidies, which are expected to benefit households with about ¥7,000 within three months. Defense spending is also a key component toward achieving the 2% of GDP defense expenditure target by 2027. Despite the ruling coalition holding only 231 of 465 seats in the Lower House, the supplementary budget is likely to pass by the end of the year with support from allied nations.

Japan’s economy has recently been sluggish. In Q3 2025, Japan’s GDP contracted by 0.4 quarter-over-quarter, equivalent to an annualized decline of 1.8%, marking its first decline in 18 months. Inflation has remained above the Bank of Japan’s 2% target for 43 consecutive months, reaching 3% in October 2025. The Japanese government estimates that the stimulus will add approximately ¥24 trillion to actual GDP, with a total economic impact approaching $265 billion.

Three Pillars of Japan’s Economic Stimulus

Livelihood Subsidies: Local government grants and energy subsidies, benefiting households with about ¥7,000

Economic Growth: Promote robust growth, estimated to add ¥24 trillion to real GDP

Defense and Diplomacy: Increase defense spending toward the 2% of GDP target by 2027

Although the government has introduced measures to stimulate economic growth, some market observers remain skeptical. Nikkei reports that there are doubts about continuing fiscal stimulus outside emergency measures. On November 20, five-year Japanese government bond credit default swap prices soared to 21.73 basis points, a six-month high, reflecting investors’ concerns about default risk. This worry is not unfounded, as Japan’s government debt exceeds 260% of GDP, the highest among developed nations.

Yen Plunge and Chain Reaction of 40-Year Bond Yield Surge

(Source: Trading View)

After the news was announced, the Yen tumbled sharply, sparking new concerns over currency stability and potential government intervention. Although prior government support measures were in place, large-scale fiscal stimulus combined with persistent high inflation may lead to capital outflows. While exports in October grew by 3.6% year-over-year, this modest growth did not offset broader concerns.

Markets are closely watching the 40-year bond yield, which hit a historic 3.774% on Thursday. Typically, such measures are aimed at increasing liquidity to lower long-term interest rates, but recent increases suggest market fears over future inflation and fiscal stability. Every 100 basis point rise in yields increases government annual financing costs by about ¥2.8 trillion, intensifying worries about unsustainable debt repayment.

The rising yields put pressure on the $20 trillion Yen arbitrage trade, where investors borrow Yen at low costs to invest abroad in higher-yielding assets. Higher yields and Yen appreciation could trigger rapid unwinding, forcing global asset sell-offs. Historical data shows a correlation of 0.55 between Yen arbitrage unwinds and declines in the S&P 500, implying that large-scale unwinding could impact both Japanese markets and trigger a chain reaction in global equities.

The scale of the Yen arbitrage trade, reaching $20 trillion, is due to Japan’s long-standing near-zero interest rates, making it the cheapest financing source globally. Investors borrow Yen, convert to USD or other currencies, and invest in higher-yield assets. While safe when Yen yields are stable and interest rate differentials are maintained, when Japanese bond yields surge and Yen begins appreciating, the costs and risks of these trades rise sharply, potentially causing panic unwinding.

Bitcoin Liquidity Benefits and Deleveraging Risks

Stimulus measures send mixed signals to Bitcoin and other risk assets. Increased liquidity often boosts demand for alternative assets, especially when domestic currency depreciates. A weaker Yen typically prompts Japanese investors to shift toward Bitcoin and other alternatives. The Bank of Japan maintains the benchmark rate at 0.5%, but if inflation persists, rate hikes remain a possibility.

Analysts say that as 2026 approaches, this will be one of Bitcoin’s strongest macroeconomic tailwinds. Japan’s initiatives, combined with potential easing by the Federal Reserve, the US Treasury reducing cash holdings, and weekly liquidity injections from China, create an environment conducive to risk asset appreciation. This synchronized global easing scenario is rare historically and often signals a golden age for risk assets.

From the perspective of Japanese investors, when the Yen depreciates, inflation runs high, and government bond yields remain relatively low, real returns on domestic currency and bonds turn negative. In such an environment, Bitcoin, as a globally accessible, inflation-resistant, trustless asset, becomes increasingly attractive. Japan was once one of the world’s largest Bitcoin markets, though it has been surpassed by the US in recent years. Still, Japanese investors have a high acceptance of cryptocurrencies. Continued Yen depreciation could trigger a new wave of Japanese capital flowing into Bitcoin.

However, rising bond yields pose risks. If bond yields increase and trigger unwinding of Yen arbitrage trades, the resulting capital outflows could force institutions to sell holdings, including Bitcoin. Cryptocurrency markets operate 24/7 and remain highly sensitive to de-leveraging trends, which often correlate with overall market volatility.

Dual Impact of Japan Stimulus on Bitcoin

Positive Factors: Liquidity injection, Yen depreciation driving capital into Bitcoin, Japanese investors seeking inflation-hedged assets

Risks: $20 trillion arbitrage unwinding potentially triggering global deleveraging, rising bond yields increasing financing costs, and global market sell-offs

The ultimate impact depends on which factor dominates. If liquidity injection outweighs deleveraging pressures, Bitcoin will benefit. But if bond market turmoil sparks a global financial panic, Bitcoin could be sold off along with other risk assets. This uncertainty is the core contradiction facing markets today.