The 10-year Japanese government bond yield is about to touch 1.9%. This would have been impossible in the past.

For the past thirty years, this thing has not really been considered a genuine market product—it is more like a cane for the Bank of Japan. The central bank pins the yield close to zero, swallowing up more than half of the market share itself, and the yield numbers resemble policy signal lights rather than real price feedback.

But now the situation has changed. Bonds have started to move according to market rules, and this sudden surge is actually sending a signal: you can't silence the market forever with policies.

Inflation is back and it's not going away. Japan's debt is frighteningly high. As the central bank gradually abandons yield curve control, investors are finally starting to demand real returns. From 2-year to 30-year, the entire yield curve is climbing, a sight not seen since before the global financial crisis.

But this is not a fairy tale of "smooth normalization." The market is testing one thing: Can Japan emerge unscathed from thirty years of extreme policies without collapsing the entire system?

The question is, what if the global economic cycle goes awry?

There is a key point that everyone tends to avoid mentioning: this steering strategy only works when the global economy is relatively stable.

If the world really falls into a recession, or worse - deflation makes a comeback... Japan will be the first to back down. No country fears deflation more than Japan. Once economic growth stalls, trade volume shrinks, and global prices plummet, do you think the Bank of Japan will just watch interest rates continue to soar while the domestic economy sinks?

Impossible. They will immediately slam the interest rates back to the floor price and start buying bonds again.