Japan’s Sleepy $8 Trillion Bond Market Wakes Up as Yields Climb

For years, Japan’s nearly $8 trillion government bond market was an oddity among global peers. Prices barely stirred, and yields were razor-thin—sometimes even negative, so investors were essentially paying to hold the bonds. The Bank of Japan’s heavy hand supported the market by buying government bonds in an effort to keep rates low and break a stubborn cycle of low growth and deflation. (Bond yields fall as their prices rise.) It made the market as boring as it was big. Trading floors were often silent, and the benchmark 10-year bonds might not trade for days.

Now, with inflation coming back, the central bank is retreating. It’s slowed its monthly bond purchases and raised its key short-term interest rate to 0.5% from -0.1%. Investors and traders around the world are suddenly grappling with a market that’s come alive with volatility. And the change doesn’t matter only in Japan: The nation’s rock-bottom rates had acted as a kind of anchor for bond yields worldwide.