Japan's public bond interest rate hits a 17-year high, Bitcoin's $123,000 defense line is in jeopardy.

Japan's 10-year government bond yield surged to its highest point since 2008, with the yen weakening simultaneously, driving strength in the dollar and applying pressure on Bitcoin through liquidity contraction mechanisms. Although Bitcoin briefly fell below $121,000, the net inflow of $2.1 billion into the U.S. spot ETF over two days demonstrates resilience, with the market caught in a range-bound battle between macro pressure and institutional demand.

How the Japanese Government Bond Sell-off Affects Bitcoin

Japanese Government Bonds (JGB) have faced large-scale sell-offs, pushing up domestic interest rates and altering the global flow of funds. This change does not occur through direct correlation, but rather through the comparison of Spot depth and order book mechanisms that exert pressure on Bitcoin prices.

As Japanese government bond yields climbed, Japanese institutional investors, especially life insurers, had less incentive to seek returns in overseas markets, and capital began to flow back to yen-based assets.

Key Transmission Path:

Japanese capital withdrawal: reduction of overseas risk positions

Dollar liquidity tightening: Global risk assets under pressure

Arbitrage trading unwind: Leverage strategy forced to reduce risk

Hedging costs soar: Maintenance costs for leveraged positions increase

The worsening effect of yen depreciation

The weakening of the Japanese yen keeps the US dollar strong, creating a double whammy:

Interest rate spread widening: The gap between Japanese and US interest rates is increasing, accelerating capital outflow from Japan (now reversed).

Liquidity exhaustion: Exchange order book depth weakened

Amplification of volatility: Price movements are more flow-driven than anchored to underlying demand

This week's market data validates this mechanism: during the weakening of the yen, the Bitcoin spot market deepens and short-term volatility intensifies. Historical experience shows that a strong dollar is negatively correlated with Bitcoin, often triggering market pullbacks.

Japanese government bonds and bitcoin market correlation data

The rise in the yield on Japanese government bonds resonates with the depreciation of the yen, putting pressure on bitcoin through the contraction of dollar liquidity. But ETF inflows show that institutional demand remains resilient, and the two forces are playing fiercely.

Bitcoin Price Prediction: 120,000 USD Defense Battle

Current Price: $121,368 (Closing on October 7)

Intraday low: $120,800 (once fell below $121,000)

Bounce magnitude: about 0.5%

Bitcoin is in a range-bound battle between 120,000 and 123,000 USD, with the following technical characteristics:

Support level: $120,000 (psychological barrier + previous breakout level)

Resistance level: $123,000 (recent high)

Key defense line: If it falls below 120,000, the next support is at 118,000

Potential Turning Point for the Bank of Japan

Reuters quoted former Bank of Japan executives as saying that the continued decline in the yen could prompt the central bank to raise interest rates in October. This will have two distinct market impacts:

Scenario 1: Bank of Japan Raises Interest Rate

· Narrowing the interest rate differential between Japan and the United States

· Alleviate dollar buying pressure

· Restore liquidity of risk assets

· Impact on Bitcoin: Short-term bearish factors have played out, medium-term bullish.

Scenario 2: Bank of Japan Holds Steady

· The Japanese yen continues to depreciate

· The dollar continues to strengthen

· Liquidity further contracts

Impact on Bitcoin: Continuing to be under pressure, testing lower support

According to Farside Investors, U.S. spot Bitcoin ETFs saw net inflows of $2.1 billion between October 6 and October 7. More notably, on October 7, when the price of Bitcoin fell by 2.4%, these funds still withdrew $875.6 million.

Data Interpretation Contradictions:

Net inflow over two days 2.1 billion vs. daily outflow 875.6 million

The inflow on October 6 was extremely large (approximately 2.9756 billion)

This shows that institutional investors are more sensitive to short-term fluctuations

The Moment of the Clash of Two Forces

The current market is dominated by two opposing forces:

Force One: Macroeconomic Pressure (Negative)

· A stronger dollar weakens risk assets

· The weakening of the Japanese Yen exacerbates liquidity contraction.

· The expansion of the Japan-U.S. interest rate differential raises hedging costs.

Power 2: ETF Demand (Positive)

· Institutional configuration needs continue

· Billions of dollars flow in every week

· Can offset macro pressures in the short term

Key Observation Indicators

The sustainability of ETF capital inflow depends on:

Whether the inflow rate can be sustained: a recent weekly average of $3-4 billion

Dollar Index Direction: Breaking 103 Will Increase Pressure

Bank of Japan Policy: October Meeting Becomes a Key Turning Point

Changes in real yield: Impact on institutional allocation willingness

Price Analysis and Investment Strategy Recommendations

Short-term Operation Suggestions (Next 1-2 Weeks)

Conservative Strategy:

Wait and see: waiting for clarity from the Bank of Japan's October meeting.

Defensive position: If holding Spot, set a stop loss at 119,000.

Build positions in batches: If it falls below 120,000, buy back in batches at 118,000-119,000.

Active Strategy:

Short-term trading: high sell and low buy in the range of 120,000-123,000

Hedging operations: Some positions can be considered to hedge against the risk of US dollar strength

ETF Tracking: Pay attention to inflow data on October 8

Mid-term Price Prediction (Next 1-3 Months)

Optimistic Scenario (Probability 40%):

· The Bank of Japan raises interest rates, and the US dollar falls.

· ETF inflows remain strong

Target price: $130,000-135,000

Neutral Scenario (Probability 35%):

· The Japanese Yen and the US Dollar remain range-bound.

· The inflow rate of ETFs slows down

Target price: range-bound between $118,000 and $125,000

Pessimistic Scenario (Probability 25%):

· The US dollar continues to strengthen, liquidity is drying up

· ETF experienced net outflows

Target price: Test $110,000 - $115,000

Bitcoin Price Prediction Scenario Analysis

The current market is at a critical turning point, with the Bank of Japan's October policy meeting, the direction of the dollar index, and ETF fund flows determining the price trend for the next 1-3 months. Investors should closely monitor the ETF inflow data on October 8 as a barometer of institutional sentiment.

Risk Warning and Core Observational Indicators

· Data that needs close monitoring recently

Bank of Japan October Meeting: Whether to Raise Interest Rates Will Change Market Dynamics

Daily ETF inflow data: Continuous net inflows are a bullish sentiment indicator.

US Dollar Index at 103 level: A breakthrough will intensify pressure on risk assets.

Bitcoin 120,000 support: a key line of defense on the technical front

Yen exchange rate at 150 level: New lows may trigger policy intervention

· Investor Action Recommendations

In the current environment, investors should adopt more cautious position management:

Reduce leverage: Avoid excessive leverage in a high volatility environment

Diversified allocation: Do not bet all your funds in a single direction.

Set Stop Loss: Strictly Implement Risk Management Discipline

Pay attention to Liquidity: Choose a trading platform with sufficient depth.