COMMENTARY / Japan

The Japanese canary in the global debt coal mine

The BOJ’s looming rate move and what it could mean for the global economy

Signals that the Bank of Japan may move toward higher interest rates highlight how the nation’s heavy debt and slow growth could push up global bond yields and expose similar fiscal risks in other advanced economies. | Bloomberg

By Barry Eichengreen
Project Syndicate

Dec 16, 2025

MUMBAI – Earlier this month, global bond markets were rocked by remarks from Bank of Japan Gov. Kazuo Ueda suggesting that the BOJ would soon weigh whether to raise interest rates. The resulting sell-off in the U.S. bond market raised yields on 10-year and 30-year U.S. Treasuries sharply.

Normally, mild comments by a mild-mannered Japanese central banker are not enough to perturb U.S. and global markets. But the BOJ has a well-earned reputation as a canary in a coal mine. In February 1999, it cut interest rates to zero in a desperate effort to fend off deflation, anticipating the zero-interest-rate policies of other central banks when they, too, confronted the specter of deflation.

Today, the BOJ’s prospective move in the other direction could be indicating that not just Japan but also other heavily indebted economies, including the United States, are about to face sharply higher yields on government bonds, with all the difficulties that entails.