#17 Japan and the End of Easy Money
Rising Japanese yields are pulling at the cheap capital that flowed through global markets for decades. On the morning of 5 August 2024, one of the calmest assumptions in global finance suddenly became expensive. Japan’s Nikkei fell more than 12 per cent in a single session, its worst day since 1987. Markets from New York to London followed it lower. Investors who had spent years borrowing cheaply in yen scrambled to unwind positions. The Bank of Japan had raised interest rates by just 0.25 percentage points days earlier. In almost any other economy, that move would have been unremarkable. In Japan, after decades of near-zero rates, it disturbed something much larger. The yen had become one of the world’s great funding currencies, financing positions in American stocks, bonds, emerging markets and almost anything offering a better return than Japanese cash. August 2024 exposed how far Japan’s monetary experiment had travelled beyond its borders. Two years later, the pressure has moved from currencies and equities into the bond market. Japan’s 10-year government bond yield has approached 3 per cent, its highest since 1996, while the 30-year yield has moved above 4 per cent. Across the Pacific, the US 30-year Treasury has traded above 5.3 per cent, around levels last seen before the financial crisis. British long-dated gilts are pushing towards 6 per cent, while France and Germany are confronting their own rise in long-term borrowing costs. One country can be blamed on fiscal incompetence. Two can be dismissed as coincidence. It becomes harder to make that argument when the same pressure appears across most of the developed world. Long-term money is becoming more expensive almost everywhere.
