Bond yields may seem complicated, but they are actually the most honest signals in the market. Japan's recent bond yield performance is a wake-up call—this is truly an indicator that reflects a country's economic health.

Compared to the stock market, which everyone understands, it is also the easiest to be deceived by. Historically, stock markets in countries on the brink of economic collapse have still soared, like Iran's stock market which surged 70% in half a year, only to see its currency collapse directly afterward. Japan is now following this path: the stock market hits new highs, but the signals from bond yields are already very dangerous.

Looking at recent data reveals how serious the situation is. The 20-year Japanese government bond yield rose from 2.56% at the end of October 2024 to 3.25% in less than three months, with a single day even jumping 2.91%. Even more frightening, since 2020, yields on Japan's 10-year, 20-year, and 40-year government bonds have been rising steadily, and the era of low interest rates and environmental friendliness is long gone. And what about economic growth? Almost zero.

This is absurd—Japan's 20-year government bond yield has already surpassed China's (which is 2.34% at the same time), yet Japan's economic growth rate is far below China's. This has never happened in history, indicating that Japan's economic fundamentals are indeed in trouble.

What is the main culprit? The Bank of Japan has run out of options. Monthly bond purchases have been cut from 6 trillion yen to 3 trillion yen because continuing to buy would destroy the yen. The yen has depreciated by 50% against the RMB from 2011 to now, and further depreciation is truly unsustainable. The central bank holds about 52% of the government bonds; once it stops large-scale purchases, the market loses its "ultimate buyer," and long-term bond yields can't be kept down.

Where does the money come from? It can only be issued through debt. The government has approved a 21.3 trillion yen economic stimulus plan, plus military spending, all relying on borrowing and tax increases to sustain. While bond yields are still soaring on one side, they have to continue issuing debt on the other, creating a vicious cycle.

Inflation is also a driving force. Japan has long shaken off deflation shadows, and by April 2025, the inflation rate reached 3.4%, well above the "ideal target" of 2%. During the Abe era, there was still room to think about how to "boost" the economy, but now the government can only barely maintain a non-collapse situation. External expectations have already become very pessimistic.

In short, Japan should be treated as a developing country. The once-glorious image of a developed nation is fading. Interest payments on government debt already consume a quarter of fiscal expenditure, and from a financial perspective, it is unsustainable. Just look at the exchange rate between the RMB and the yen—since 1995, the RMB has significantly appreciated against the yen. What does this mean? Japanese people's income converted into RMB can no longer compare to the past. Many ordinary Japanese people's quality of life has long ceased to be at a developed country level.

The root cause lies in competitiveness. Japanese companies don't need to compare with US firms—they are already losing badly even against East Asian rivals. This is not just the fault of one or two individuals but a problem with the internal system itself. The decision-making chain is chaotic, no one is truly responsible, and everyone collectively shirks responsibility. Sometimes, they even choose to fake data collectively to cover up problems, only to have someone come out and apologize when the truth can no longer be hidden. Such a system makes it extremely difficult to rise again.