I mentioned back around Thanksgiving that the real risk to watch isn’t with the Federal Reserve, but with Japan.

In the past two months, Japanese government bond yields have gone completely out of control. The 10-year bond yield is heading straight for a 17-year high, and the 30-year yield is hitting record highs. Remember, this is a country that’s had zero interest rates for twenty years. This isn’t a normal adjustment—it’s a clear signal that the era of higher interest rates has officially returned.

Why is the global market so afraid of Japan moving its interest rates? Think back to last July, when the Bank of Japan just nudged rates from 0.1% to 0.25%. What happened? US stocks plunged, Bitcoin crashed, and the entire Asian market tanked. And that was just a tentative, minor move. This time, Japan isn’t just testing the waters—they’re serious.

Why does Japan have to raise rates? Because this economy, which has been asleep for thirty years, is truly waking up. Core inflation is holding above 2%, wage growth has hit a thirty-year high, and corporate profits are improving. But here’s the problem—prolonged ultra-low interest rates are starting to undermine these gains. The yen’s continued depreciation is pushing up import costs, forcing inflation higher, and wage increases simply can’t keep pace with rising prices. To protect this hard-won recovery, Japan has no choice but to hike rates and normalize monetary policy.

What does this mean? It means that the “cheapest funding channel” that has fueled the global risk asset boom for over a decade is about to dry up.

Here’s where the real risk lies: the global yen carry trade—worth trillions of dollars—is being forced into a corner.

The game has always been simple: borrow super-low-interest yen in Japan, exchange it for US dollars, then buy US Treasuries, US stocks, crypto, real estate. As long as the yen doesn’t appreciate, it’s easy money. But once Japan raises rates and the yen strengthens, the whole chain reverses instantly: borrowing costs surge, assets lose value when measured in yen, and the only way out is to sell assets and buy back yen. Then everyone rushes for the exit, and it triggers a stampede-style crash.

This isn’t alarmist talk—it’s happened before in history.

Why is it even more dangerous this time?

Because Japanese government bond rates can no longer be suppressed. Interest rates are set by the market, not by central bank slogans. Now, the surge in yields is actually forcing the Bank of Japan to hike rates. On top of that, with the central bank turning more hawkish, the market has already priced in the expectation that Japan is entering a rate-hiking cycle.

Crypto markets, US stocks, global risk assets—they’re all watching to see what Japan does next.