Reverse Flow Phase in Japan

📉 Japan is cutting global liquidity — and the world pretends nothing happened

A quiet turning point has occurred in the global market, comparable in scale to the end of the U.S. quantitative easing program, but far more dangerous. Because unlike the Fed, Japan has been injecting money into the global system for nearly three uninterrupted decades.

Now this era is coming to an end — and the consequences will be felt much more strongly than they appear at first glance.

The yield on 10-year Japanese government bonds (JGB) has broken the critical 1.75% level

This is the highest since 2008. For a country where it was considered a miracle to see yields above 0.2% for decades, such a jump signals that the monetary era of “free money” is closing.

For almost 30 years Japan has functioned as a global money generator.
While Europe and the U.S. faced crises, stress, inflation, and recessions, the Japanese financial system fed the world with ultra-cheap capital. Thanks to zero rates and monetary easing, nearly $3.4 trillion flowed into the U.S. and Europe, supporting their debt markets and stock indices.

But on November 10, 2025, the reverse flow phase began.

Japanese pension funds — among the largest institutional investors on the planet — announced the start of withdrawing $1.1 trillion from U.S. Treasury bonds.

The reason is simple and harsh: keeping money in the U.S. is unprofitable when yields in Japan are finally rising, and currency hedge costs eat almost everything.

What changes right now

1. U.S. interest rates will rise
Analysts say: if the outflow of Japanese money continues, the yield on 10-year Treasuries may rise another 40 bps.

What does this mean for ordinary people?

• your 7% mortgage becomes an 8% mortgage;
• car loans get more expensive;
• corporate borrowing spikes.

2. The high-yield (junk bond) market is hanging by a thread
Companies with a combined debt of $3 trillion will be hit.
For some of them, rising rates are a direct path to default.

3. The U.S. stock market loses a fundamental pillar
According to economists, at yields around 3.5%, the stock market could lose up to 35% of fair value. Not necessarily instantly — but fundamentally, the revaluation becomes inevitable.

Key date — December 18

The Bank of Japan will hold a meeting where it may raise rates again. If that happens — the domino effect accelerates. Because:

• Japanese banks will begin to shut off cheap overseas lending,
• pension funds will continue withdrawing,
• carry trade will unwind,
• the dollar may weaken sharply,
• global liquidity will shrink.

What looks like a “local Japanese market move” is actually the beginning of the biggest restructuring of global financial architecture since the 1990s.

The world has grown used to Japanese money as a self-replenishing background resource. Now this resource is disappearing.

💔 And markets still pretend everything is fine. As always — until the numbers from economists’ notes turn into the numbers in credit contracts and corporate reports.