The Bank of Japan has finally broken its dovish spell, raising interest rates to levels not seen since 1995. This move, which caught many off guard, has sent shockwaves through global markets. The yen surged, bond yields spiked, and equity markets from Tokyo to London felt the tremors.
For years, Japan was the outlier, the last bastion of negative rates. No longer. The message is clear: the carry trade that funded so much global speculation is unwinding.
Investors who borrowed cheap yen to buy higher-yielding assets are now scrambling. The Nikkei dropped 3% in a single session. But this is not just Japan's problem.
The ripple effects are being felt in gilt markets, where yields are already under pressure from sticky inflation. The Bank of England now faces a stark choice: follow Japan's lead or risk capital flight. For the fiscal hawks among us, this is vindication.
Central banks cannot inflate away their problems forever. The piper must be paid. The question is, who will be left holding the bag?
