In Japan’s 20-year government bond auction, long-term borrowing costs rose, but there was no sign of the demand collapse the market had feared. Still, interest is growing as higher long-term yields could later weigh on risk assets such as bitcoin through Japan’s monetary policy and the yen’s moves.

On Sept. 15 (local time), blockchain media outlet CryptoSlate reported that the average accepted yield at Japan’s latest 20-year bond auction was 3.856 percent. That was up 15.8 basis points from 3.698 percent at the Aug. 20 auction.

Investor demand for long-term bonds did not break down sharply. The bid-to-cover ratio edged up to about 4.01 times from 3.98 times. The gap between the highest accepted yield and the average accepted yield also narrowed to 1.3 basis points from 1.5 basis points.

The auction is seen not as a failure to sell the bonds, but as investors demanding a higher return to buy Japan’s long-term debt. That suggests the market is repricing Japan’s long-term yields.

In the bitcoin market, the point to watch is Japan’s yen funding conditions rather than the 20-year yield itself. Investors have used the so-called yen carry trade, borrowing yen at Japan’s relatively low short-term rates and investing in higher-yielding risk assets such as stocks and cryptocurrencies.

If borrowing costs rise due to changes in Bank of Japan policy, or if the yen strengthens, the situation could change. That is because repayment burdens on yen-funded borrowing would rise, increasing the chance leveraged positions are liquidated. In that case, selling pressure could emerge across risk assets including global stocks and cryptocurrencies.

Even so, it is hard to say that unwinding of the yen carry trade has begun based on this 20-year auction alone. The 20-year long-term yield is not an indicator that directly shows short-term borrowing costs. What the result showed is that investors seeking to hold Japanese long-term government bonds are demanding higher compensation than before.

There was also no clear immediate risk-off move in markets on the auction day. A Reuters update before the auction said the Nikkei index edged higher and the yen weakened against the dollar. Bitcoin was also trading around $77,700 at the time, down less than 1 percent on the day.

It is therefore difficult to pin the auction down as a direct cause of a decline in bitcoin prices. Instead, a key variable is whether future Bank of Japan policy changes and yen moves, combined with rising long-term yields, lead to a broader pullback in risk assets.

The pace of the long-term yield rise was faster than the market had expected. In the Bank of Japan’s August bond market survey, respondents forecast a median 20-year market yield of 3.70 percent by end-September and put the top 25 percent band at 3.75 percent. The 3.856 percent average accepted yield exceeded those forecasts. The indicator’s nature and reference point are not exactly the same, but it confirms Japan’s long-term yields are being repriced faster than expected.

The market is also watching the burden on Japan’s financial sector from higher rates. In its April Financial System Report, the Bank of Japan assessed Japan’s financial system as broadly stable and said it showed resilience in stress tests. It also noted that mark-to-market losses on bonds were increasing and pointed out that shinkin banks could face relatively large losses on securities.

Markets are now focused on the Bank of Japan’s monetary policy meeting on Sept. 17-18. In the bitcoin market, the key variable is how BoJ policy changes and the resulting yen moves, rather than the bond auction itself, will affect risk assets.

In particular, if the yen strengthens after long-term yields rise and stocks and cryptocurrencies weaken at the same time, concerns about an unwind of the yen carry trade could grow. If, as in this auction, demand for government bonds holds up and volatility in the yen and risk-asset markets remains limited, it would be hard to say the market shock has spread on long-term yield rises alone.