Japan's Economy Finally Escapes Lost Decades as Bond Yields Rise

Japan's economy has been stuck in the 'Lost Decades' for over three decades, marked by persistent deflation and slow growth. The Bank of Japan tried various monetary policies to combat this issue, including cutting interest rates to zero and buying trillions of yen worth of government bonds.

However, recent changes indicate that Japan may finally be breaking free from this cycle. Inflation has remained above the Bank of Japan's target for an extended period, wages are rising after years of stagnation, and investors are demanding higher returns to lend money to the Japanese government.

The 10-year government bond yield has climbed to around 3%, its highest level in decades. This is significant because it means that Japan is no longer alone in experiencing high inflation - India's 10-year government bond yield is around 7%, while yields in the US, France, and Germany have also risen to multi-year highs.

The global economy is undergoing a shift, driven by higher inflation and central banks withdrawing from quantitative easing. Governments are borrowing more due to the pandemic, defense spending, and infrastructure investments, leading to increased demand for higher returns on government bonds.