India's Economic Vulnerability Unfolds Differently from Japan
India's economic situation is unique and should not be compared to Japan's, according to an expert. The country's bond market has undergone a reset, creating a global liquidity story that affects India differently than it would Japan.
The yield on Japan's 10-year government bonds crossed 3% for the first time since 1996, while the US 10-year recently approached 4.8%. Indian billionaire banker Uday Kotak warned of rising sovereign debt and widening deficits driving balance-sheet expansion, which could increase inflation and interest-rate volatility.
India's Reserve Bank currently targets its overnight rate near 5.25%, compared to Japan's near 1%. This wide interest-rate gap is a key factor in why yen-funded borrowing became significant globally, with an estimated ¥40 trillion ($250 billion) in carry positions before the August 2024 unwind.
However, this structure does not apply to India. Foreign investors bought $3.1 billion of Indian equities in August, but total withdrawals during 2026 still reached a record $24.6 billion. As a result, India's vulnerability is tied more closely to shifts in external risk appetite than domestic yen-style funding cycles.