Japanese Government Bond yields are on the rise again.
- 10-year JGB yield climbs to highest since 2008
- 20-Year JGB yield climbs to highest level since 1999
Neither of these are overly positive for global money liqudiity, but the fear mongering from the usual social media suspects is too extreme. I’ve seen “death of the global money printer”doing the rounds, claiming that Japanese investors would dump more than $1 trillion of U.S. Treasuries, unwind the entire yen carry trade, and trigger a global asset crash. The argument framed Japan’s rising yields as an extinction-level event for U.S. bonds, equities, and emerging markets.
The logic runs like this:
- for decades, Japanese money flooded into global markets because domestic yields were pinned near zero.
- Now that JGBs offer returns, the story goes, Japan will repatriate capital, dump Treasuries, drive U.S. yields sharply higher, destroy equity valuations, and force a mass unwind of carry trades.
- The claim concludes with a warning that the BOJ’s December meeting could trigger an even more dramatic systemic shock.
But while Japan’s normalisation matters, the catastrophe described simply doesn’t hold up.
Why the crisis narrative falls apart
Much of the alarmist framing confuses flow dynamics with sudden liquidation:
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Japan’s 1.7% JGB yield isn’t a surprise.
It has been in forward markets for more than a year, and investors have already repositioned for BOJ normalisation since 2023. -
Japanese institutions are not dumping $1.1 trillion overnight.
Flows depend on hedging costs, not fear. Adjustments are gradual and already partially underway. There is no evidence of panic selling or forced repatriation. -
U.S. yields don’t hinge on Japan alone.
Treasury supply, U.S. growth, inflation expectations and Fed policy dominate yield movements. Japan can nudge yields at the margin, not cause a 40bp shock by itself. -
The yen carry trade is not a single $1.2 trillion block.
Many positions are hedged or paired. Unwinds happen in stages and often soften, not amplify, volatility. -
Japan’s fiscal position is not collapsing.
Its debt is domestically held and the average interest cost remains far below 1%. A move to 1.7% yields is not a fiscal rupture. -
The BOJ isn’t trying to kill global liquidity.
It remains the most dovish G10 central bank. Even a December hike would be modest and telegraphed.
In short, the viral claim dramatically overstates both the scale and speed of any market impact.
So what actually matters for markets?
Behind the sensationalism, there are real signals traders should watch:
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JGB yields rising means Japan’s capital outflows will slow over time.
Not reverse violently — just slow. That matters, but gradually. -
Japanese lifers (insurers) adjust based on hedging costs.
When USD/JPY hedges are expensive, they favour domestic JGBs.
When hedges get cheaper, they return to Treasuries. -
Global yield pressure remains a function of U.S. dynamics.
Treasury supply, the Fed’s stance, labour data and core inflation matter far more than Japanese flows. -
Carry trades may see periods of unwind, especially if USD/JPY turns sharply, but not in a single, system-wide shock.
-
The BOJ’s December meeting will influence volatility, not break the global financial system. A hike raises yen sensitivity, but doesn’t detonate global credit markets. A hike also seems unlikely.
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Asset-class implications:
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USD/JPY: still driven by rate spreads + risk sentiment.
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U.S. yields: mild upward bias, not a disorderly spike.
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Equities: more sensitive to real-yield drift than to Japan.
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Credit: weakest HY names vulnerable, but no wave of defaults.
-
EM: some pressure if yen strengthens, but fundamentals matter more.
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Bottom Line:
Japan’s shift away from ultra-loose policy does tighten global liquidity at the edges — but slowly, predictably, and with heavy hedging. It’s a structural theme, not an extinction event.
Traders should position for bouts of volatility, not collapse. The real drivers of global markets remain U.S. rates, inflation, Treasury supply, and risk appetite — not a single JGB yield print.
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Even more bottom line:
The move in JGB yields supports a gradual tightening of global liquidity, but its market influence is incremental. U.S. rate dynamics, Treasury supply and risk appetite remain the dominant forces for global yields, FX and equities.
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I posted last week for more on this:
This article was written by Eamonn Sheridan at investinglive.com.