The market is underestimating the severity of the Japanese situation:

• 10-year Japanese bond yields are at a 29-year high
• 20-year yields are at nearly 30 years high
• 30-year and 40-year yields are setting new all-time highs
This isn't just a problem for Japan alone, because for over 20 years, Japan has been the world's largest source of carry trade capital, borrowing in Yen at near-zero interest rates and using that money to buy global assets, from US bonds, stocks, crypto to emerging markets.
We must emphasize that when Japanese bond yields rise sharply:
- More money flows back into the country
- Carry trade is significantly unwinded
- Global liquidity risks being drawn back into Japan
That's why volatility in the Japanese bond market is sometimes even more dangerous than short-term geopolitical events. In essence, war creates short-term shocks, but a crisis in the bond market can shake the entire global financial system!
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