Bank of Japan begins normalizing bond market after years of ultra-low interest rates
Updated
Updated · Forbes · Apr 25
Bank of Japan begins normalizing bond market after years of ultra-low interest rates
8 articles · Updated · Forbes · Apr 25
The BOJ is loosening its yield curve control as inflation in Japan now exceeds its 2% target, prompting a shift in policy.
Rising Japanese yields may trigger repatriation of capital, impacting global markets by tightening liquidity and putting upward pressure on U.S. Treasury yields.
This normalization threatens the yen carry trade, increases volatility across asset classes, and challenges growth equities and emerging markets reliant on global capital flows.
Japan is raising rates while cutting taxes. Is this policy conflict about to crash its bond market?
After decades of deflation, can Japan's economy actually withstand higher interest rates without collapsing?
With inflation data mixed, is the Bank of Japan hiking rates too soon and risking a domestic recession?
The yen carry trade is unwinding. Which global assets are most exposed to a sudden, massive sell-off?
The era of cheap money is over. What surprising new havens will emerge for savvy investors?
BOJ's Cautious Rate Hikes Clash with ¥5 Trillion Fiscal Stimulus, Fueling JGB Yield Spike in 2026
Overview
In early 2026, Japan faced a surge in inflation driven by a weakened yen and rising global energy costs amid ongoing Middle East tensions. Despite inflation exceeding its 2% target, the Bank of Japan chose to maintain ultra-loose monetary policy to protect the fragile economic recovery. This cautious stance, combined with Prime Minister Takaichi's aggressive fiscal stimulus and tax cuts following her election victory, triggered a sharp rise in government bond yields and increased financial market volatility. The resulting tension between monetary tightening and fiscal expansion heightened risks in Japan's bond market, pressured corporate borrowing costs, and sent ripple effects through global markets, notably impacting U.S. Treasuries and triggering yen-driven carry trade unwinding.