Summary in Plain Language
This news reports a significant financial event that challenges many people's assumptions: Japan, which has been in a zero-interest-rate environment for 30 years, has recently seen the yield on its 10-year government bonds (the market interest rate for the Japanese government borrowing money for 10 years) exceed 3% for the first time, reaching the highest level in 30 years since 1996. In the past, it was widely believed that rising global interest rates were driven by the U.S. raising interest rates. However, a top Japanese research institution, Nomura, has overturned this conclusion, suggesting that Japan is actually the source of the current increase in global long-term interest rates. The main reason is that the Japanese government is in heavy debt and its finances are near collapse, to the point where the Trump administration has even intervened in Japan's internal affairs. If this "premonitory sign of a Japanese debt crisis" continues to develop, not only will global financial markets be destabilized, but the AI investment boom, which has been thriving for several years, could also be severely impacted.
---
Detailed Explanation
1. What does it mean when Japanese bond yields exceed 3%? Why is the whole market in an uproar?
Many people don't understand the significance of 3%. In the context of Japan, it means that someone who has essentially lived without paying interest for 30 years suddenly has to borrow money at high-interest rates. Over the past 30 years, Japan has kept interest rates extremely low to stimulate its economy. Ordinary people not only received no interest on their bank deposits but might even have to pay small management fees. The cost for the Japanese government to borrow money has been below 0.5% for years, meaning borrowing 1 million yen would only cost 5,000 yen in interest per year—almost for free. Now, the borrowing cost has increased by six times to 3%, indicating that all market participants no longer believe the Japanese government will be able to repay its debts on time. No one is willing to buy Japanese government bonds, and without higher interest rates, it would be extremely difficult for the government to borrow money. This is a "black swan" event, a rare and abnormal occurrence in Japan's economic history.
2. Complete reversal of common assumptions: Japan, not the U.S., is the cause of rising global interest rates
Traditionally, the Federal Reserve was seen as the "boss" of global interest rates, and when the U.S. raised interest rates, the rest of the world had to follow. However, Nomura's analysis shows the opposite: In the past year, the yield on Japanese 10-year government bonds increased by 1.4 percentage points, while the yield on U.S. 10-year government bonds only increased by 0.7 percentage points. The contribution of the U.S. interest rate hike was only 0.08 percentage points, and the combined effects of inflation expectations and adjustments to the Japanese central bank's policies were only 0.72 percentage points. The biggest factor was the "fiscal risk premium"—Japan plans to spend an additional 20 trillion yen on stimulus this year, and its total debt has reached 260% of its GDP. The market is worried that Japan might default, which is causing global long-term interest rates to rise. The blame cannot be placed on the U.S.
3. The U.S. intervening in Japan's internal affairs: Fear of a Japanese debt crisis dragging the U.S. down
The Trump administration directly pressured Japan to raise interest rates and stop excessive fiscal expansion at the G20 meeting. This seems like meddling in another country's affairs, but the real reason is fear that a Japanese debt crisis could drag the U.S. down. If Japan continues to let interest rates rise and the yen depreciate, Japanese cars, chips, and household appliances could become cheaper than American products, severely impacting the U.S. manufacturing industry. Additionally, Japan holds more than $1 trillion in U.S. debt and is one of America's largest foreign creditors. If Japan's debt market collapses, it would likely sell its U.S. bonds to raise funds, driving up U.S. borrowing costs significantly. The U.S. government would have to spend billions more each year just on interest payments.
4. How can Japanese bond fluctuations affect the global AI boom?
The connection is straightforward: 90% of AI companies are not yet profitable and rely on investors' capital and bank loans to fund research and development. When global long-term interest rates were around 1%, buying government bonds offered a 1% annual return, making it attractive for investors to bet on AI stocks. Now that interest rates are rising, buying government bonds provides a 3% annual return with no risk. Who would invest in AI companies, whose profitability is uncertain? Moreover, as AI companies need to borrow money to build data centers and purchase chips, their interest costs will double, potentially turning profitable projects into losses and slowing down the industry's growth. The AI bubble created in the past two years could burst at any time.
5. How does this affect ordinary people?
There are three direct impacts:
1. If you notice a decline in the returns on your bond funds or stable bank investments, don't be surprised. Rising global interest rates will lower the market price of bonds, and this situation is likely to continue.
2. The tech and AI sectors in the stock market will experience significant volatility. Without professional knowledge, it's best not to chase high prices and become a victim of market fluctuations.
3. As global long-term interest rates rise, the potential for a significant decrease in domestic mortgage rates will be limited. Those planning to use leverage to buy homes should carefully consider the increased interest costs.