Why is everyone suddenly talking about Japan’s bond market?
And why does it matter for India?
A quick explainer by CA Medha Arnal and Rudra Rai
1️⃣ Japan’s bond yields just spiked
They’re at the highest levels in decades, with the 10-yr yield at 1.835%, a level last seen in June 2008.
That means investors now want more return to lend money to Japan.
2️⃣ Why this happened:
- Inflation is rising
- Japan is slowly exiting its ultra-low interest rate era
- Govt planning a massive spending package → more debt → more worry
- Yen has weakened a lot
So investors are demanding higher yields.
3️⃣ Why the world cares
Japan isn’t just another economy.
It’s one of the world’s biggest lenders.
When Japanese bonds start paying more, investors may:
- Pull money out of foreign bonds/equities
- Bring capital back home
- Unwind the famous yen carry trade
This can shake global markets.
4️⃣ What about India?
Impact is mostly indirect, but worth noting:
Short-term risks:
- Some global money could move out of EMs like India
- Slight pressure on equities
- Rupee volatility
But India has buffers:
- Foreign investors hold less than 5% of our govt debt
- Macros look stable compared to many developed economies
Sources: Livemint, Business Standard, Economic Times
P.S. This is not financial advice.