Market watchers are noticing something interesting in Japan right now. Inflation expectations are climbing, but here's the kicker—real yields (that's bond returns after you factor in inflation) aren't budging much. They're staying suppressed.

Why does this matter? Well, when real yields stay low, bonds become less attractive to international investors hunting for returns. And that means less demand for yen. So the very thing that should theoretically strengthen Japan's currency—rising inflation bets—is actually doing the opposite by keeping inflation-adjusted yields pinned down.

It's one of those counterintuitive market dynamics where the yen loses a key pillar of support, even as consumer price pressures build. The bond market's telling us that inflation expectations are rising faster than nominal yields can keep up. That gap? It's what's quietly weighing on the currency.