For decades, Japan was the quiet corner of global finance - home to ultra-low interest rates, stable debt markets, and muted inflation. Today, rising yields in Japan are ringing alarm bells from Tokyo to Wall Street.

𝗪𝗵𝗮𝘁 𝗰𝗵𝗮𝗻𝗴𝗲𝗱?

It started with the Bank of Japan quietly scaling back its massive bond-buying program, marking the end of an era of ultra-loose monetary policy. For the first time in years, Japanese government bond (JGB) yields are rising sharply: 30-year yields at 3.17% and 40-year yields at 3.67%

But this isn't just about central bank tightening. Inflation in Japan - long thought to be extinct - is back with a vengeance. Wage growth and energy prices have pushed inflation to 3.6%, far above the BoJ’s 2% target. And the political climate isn’t helping: with the tariff war and elections looming, pressure is building for tax cuts and higher spending, just as Japan wrestles with a debt-to-GDP ratio of 260% - highest in the developed world, even higher than Greece during its crisis.

𝗕𝘂𝘁 𝗵𝗲𝗿𝗲’𝘀 𝘄𝗵𝗲𝗿𝗲 𝗶𝘁 𝗴𝗲𝘁𝘀 𝗴𝗹𝗼𝗯𝗮𝗹

Japan is the world's largest net creditor and holds over $1 trillion in U.S. Treasuries. As yields rise at home, Japanese institutions may start bringing their money back. That could dry up liquidity in global bond markets, pushing yields higher in the U.S. and Europe. The popular yen-funded carry trade - borrowing cheaply in yen to invest abroad - is also unwinding, threatening capital flows into risk assets and emerging markets.

Even the yen itself is under pressure. It recently hit a 34-year low, amplifying imported inflation and making trade balances more volatile. A weaker yen might help exports, but at what cost?

As confidence in sovereign debt erodes, investors are trying to navigate a world where Japan’s financial stability is no longer a given.

Japan may not have been on your macro radar a year ago. But today, it’s the canary in the global bond market coal mine.