What investors long believed couldn’t happen… just did.
The Bank of Japan has raised rates again, pushing government bond yields into territory the modern financial system has never truly dealt with.
This isn’t a Japan-only issue.
This is a global pressure test.
For decades, Japan ran on near-zero interest rates. That wasn’t policy — it was life support.
Now that support is being pulled, and the math turns brutal fast.
Here’s where the stress begins:
Japan carries nearly $10 trillion in debt, and it keeps growing.
Higher yields mean:
→ Exploding debt-servicing costs
→ Interest consuming government revenue
→ Fiscal flexibility disappearing
History offers no gentle exits from this setup:
→ Default
→ Restructuring
→ Or inflation
And Japan never breaks in isolation.
The hidden global shockwave
Japan owns trillions in overseas assets:
• Over $1 trillion in U.S. Treasuries
• Hundreds of billions in global stocks and bonds
Those positions made sense when Japanese yields were near zero.
Now domestic bonds finally offer real returns.
After currency hedging, U.S. Treasuries no longer make financial sense for Japanese investors.
That’s not emotion — it’s arithmetic.
Capital comes home.
Even a few hundred billion dollars returning to Japan wouldn’t be “orderly.”
It would drain global liquidity.
Then comes the real accelerant: the yen carry trade
Over $1 trillion was borrowed cheaply in yen and deployed into:
→ Equities
→ Crypto
→ Emerging markets
As Japanese rates rise and the yen strengthens:
→ Carry trades unwind
→ Margin calls hit
→ Forced selling begins
→ Correlations snap to ONE
Everything sells. At the same time.
Meanwhile:
→ U.S.–Japan yield spreads are tightening
→ Japan has less incentive to fund U.S. deficits
→ U.S. borrowing costs face upward pressure
And the Bank of Japan may not be finished.
Another hike?
→ Yen spikes
→ Carry trades detonate harder
→ Risk assets feel it immediately
Japan can’t simply print its way out.
Inflation is already present:
Print more → Yen weakens → Import costs surge → Domestic pressure explodes
This isn’t noise.
This is structure breaking.
⏳ The clock is ticking.
