Japan is about to do what no one thinks is possible.
Today, the Bank of Japan is raising interest rates again — pushing government bond yields to levels that the modern financial system has never endured.
This is not a local event.
This is a global stress test.
For decades, Japan has survived with interest rates close to zero.
That was the lifeline holding the system together.
Now gone — and the math gets harsh.
Here's why everything breaks quickly:
Japan sits on about ~$10 trillion of debt, growing every day.
Rising returns mean: → Explosion of debt service costs
→ Interest eats into government revenues
→ Financial flexibility disappears
No modern economy escapes this cleanly: → Default
→ Restructuring
→ Or inflation
And Japan won't break alone.
The hidden global shock
Japan holds trillions in foreign assets: • Over $1 trillion in U.S. Treasury bonds
• Hundreds of billions in global stocks and bonds
Those investments only made sense when Japanese yields were yielding nothing.
Now? Finally, local bonds pay real yields.
After hedging currencies, U.S. Treasury bonds are losing money for Japanese investors.
This is not fear. These are calculations.
Capital is coming home.
Even a few hundred billion dollars in returns isn't 'normal' — it's a liquidity void.
Then comes the real detonator: Yen trade
More than $1 trillion borrowed cheap in yen and deployed in: → stocks
→ Cryptocurrencies
→ Emerging markets
With Japanese interest rates rising and the yen strong: → Yen trade unravels
→ Margin calls are triggered
→ Forced selling begins
→ Relationships trend to one
Everything is sold. Together.
In the meantime…
→ Yield spreads between the U.S. and Japan are narrowing
→ Japan has fewer reasons to finance the U.S. deficit
→ Borrowing costs rise in the United States
And the Bank of Japan may not be done yet.
Another increase? → Rising yen
→ Stronger yen trade explosion
→ Risky assets feel it right away
Japan can't print more now.
Inflation is already high: Printing → Weak yen → Rising imports → Explosion of domestic pressure
