Japan's Bank is shaking the global markets with another rate hike, pushing government bond yields to unprecedented levels. This isn't just a local issue; it's a global stress test. Japan's decades-long reliance on near-zero rates is over, and the consequences are severe.
The Math Turns Savage
Japan's $10 trillion debt is growing daily. Higher yields mean:
- Exploding debt servicing costs
- Interest eats government revenue
- Fiscal flexibility vanishes
No modern economy escapes this unscathed. Japan's situation will impact global markets, as it holds trillions in foreign assets, including $1T in US Treasuries.
The Hidden Global Shockwave
As Japanese yields rise, capital will flow back home, causing a liquidity vacuum. The yen carry trade, worth over $1 trillion, will unwind, triggering margin calls and forced selling.
The Detonator
The BoJ may not be done. Another hike could spike the yen, detonate carry trades, and impact risk assets. Japan can't print its way out; inflation is already high.
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