El-Erian warns that "the rise in Japanese government bond yields will lead to a global reallocation of funds"

Source: BlockMedia Original Title: El-Erian “Rising Japanese Government Bond Yields Will Lead to Global Capital Reallocation” Warning Original Link: A warning has been issued that if Japanese government bond yields continue to rise sharply, there could be a large-scale movement of funds in the global financial markets. It is pointed out that if Japanese interest rates, which have served as a 'low-rate anchor' for the global financial markets for an extended period, rise structurally, it could trigger a chain reaction of shocks across the global bond, stock, and currency markets.

Mohamed El-Erian, Chief Economic Advisor at Allianz, stated that “the most notable change in Japan recently is the continued rise in government bond yields,” adding that “the 10-year Japanese government bond yield is currently trading at around 2.07%.” He emphasized that this trend should be viewed as a potential structural change rather than a short-term fluctuation.

According to Bloomberg data, the yield on Japan's 10-year government bonds recently rose to 2.07%, marking the highest level of the year. Interest rates, which had been hovering around the 1.6% range until mid-October, accelerated in their upward trend after November and surpassed the 2% mark in December. This represents an increase of over 40 basis points in just a little over two months.

The market sees expectations for the normalization of the Bank of Japan's monetary policy as the key background for interest rate increases. As the ultra-loose monetary policy and yield curve control measures that have been maintained for a long time effectively enter a phase of conclusion, the government bond market is said to be pre-emptively reflecting these policy changes. Additionally, with the global debate over peak interest rates and the burden of yen depreciation overlapping, upward pressure is being applied to Japanese interest rates.

El-Erian warned that the rise in Japanese interest rates may not be limited to domestic issues in Japan. Japan is one of the world's largest overseas bond investment countries, and if Japanese government bond yields rise to a significant level, funds that were invested in overseas assets could return to their home country. This could impact global asset prices, including the U.S. Treasury and European bond markets.

In particular, it has been pointed out that if Japanese interest rates stabilize around 2%, a reallocation of global investors' portfolios may become inevitable. This is because if the global capital flow, which has been formed under the premise of low interest rates, is shaken, it could lead to increased volatility in bond yields and have a cascading effect on the stock and foreign exchange markets.

The market reports that the flow of Japanese government bond yields is emerging as a key variable for the global financial market at the end of this year and the beginning of next year. According to the warning from advisor El-Erian, if the rise in Japanese interest rates becomes a structural trend, the repercussions are likely to spread beyond Japan to the global asset markets.