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Japan’s Bond Market Shakeup Sparks Global Financial Turmoil

Source: From 'Widow-Maker' to market shaker: Why Japan’s bonds are sending shockwaves globally (2025-11-21)

Japan’s bond market is undergoing a historic transformation, signaling a new era for global finance. After decades of ultra-loose monetary policy, the Bank of Japan (BOJ) has begun raising yields, causing ripples across international markets. This shift coincides with a significant stimulus package, prompting fears of capital repatriation and increased borrowing costs for Japan, the world’s most indebted nation. The move marks a pivotal moment, challenging the longstanding stability of Japan’s financial system and impacting global investors. Recent developments include the BOJ’s decision to taper its bond-buying program, leading to a sharp rise in yields, which had been artificially suppressed for years. This change is driven by inflationary pressures and a desire to normalize monetary policy, but it risks destabilizing the country’s financial markets and the broader economy. The repercussions extend beyond Japan, affecting global bond markets, currency valuations, and international investment flows. In addition to economic factors, geopolitical tensions are intensifying. Prime Minister Sanae Takaichi’s hawkish stance on Taiwan has strained relations with China, which has responded with economic sanctions, including freezing film approvals and restricting seafood imports. These diplomatic tensions add complexity to Japan’s economic landscape, influencing investor confidence and market stability. Furthermore, Japan’s move is occurring amid a global shift towards tighter monetary policies by major economies like the US and Europe, which are battling inflation and adjusting interest rates. The divergence between Japan’s policy and other nations’ strategies could lead to currency fluctuations, capital shifts, and increased volatility in global markets. Recent facts that deepen the context include: 1. Japan’s government debt exceeds 250% of its GDP, the highest among developed nations. 2. The BOJ’s yield curve control policy has kept 10-year government bond yields near zero for over a decade. 3. The global bond market has seen a $15 trillion increase in negative-yielding debt since 2020, but Japan’s yields are now rising from near-zero levels. 4. Japan’s aging population and shrinking workforce are exerting long-term economic pressures, complicating monetary policy decisions. 5. The yen has depreciated by over 20% against the US dollar in the past year, reflecting market reactions to Japan’s policy shifts. This seismic change in Japan’s bond market is not just a national issue but a global one, with potential to reshape investment strategies, currency markets, and international economic relations. As Japan navigates this delicate transition, global investors and policymakers must stay vigilant to the evolving risks and opportunities. The coming months will be critical in determining whether Japan’s bold move will stabilize its economy or trigger broader financial instability.

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