Japan’s bond-market peg could snap

Until inflation subsides, central bankers will keep turning the screws on the global economy. On November 2nd the Federal Reserve raised interest rates by 0.75 percentage points for the fourth consecutive time, six days after the European Central Bank made the same move. As we published this leader, the Bank of England was poised to raise rates by a similar amount. Grim news on inflation keeps dashing hopes of a reprieve from higher rates. The latest nasty surprise came from the euro zone, where prices in the year to October rose by a record 10.7%.

The higher rates rise, the sterner the test for global markets and the more likely that something breaks. Britain has already had to stave off fire-sales of assets by pension funds. Investors fret about America’s Treasury market, which has become less liquid, and the risks from junk corporate debt. Yet there is another danger that has gone underappreciated, in part because it lurks in a place where monetary policy remains ultra-loose: Japan. Since 2016 its central bank has pegged the yield on ten-year government debt near zero. The end of the peg, once hard to imagine, now looms menacingly on the horizon.