Once the era of zero interest rates comes to an end, debt interest becomes a deadly squeeze on public finances—this is not alarmism; the current financial situation is confirming this logic.

Recently, Japan's government bond yields hit a new high since 1999, with the 10-year yield breaking through 2.125%, and the market reaction was very intense. Many are asking whether the global financial system is about to face problems. Instead of guessing blindly, it's better to look at the underlying logic.

**The End of Zero Interest Rate Benefits, the Interest Monster Comes Knocking**

Japan has been living in an environment close to zero interest rates for decades, with government debt exceeding 260% of GDP—since borrowing costs are almost zero, why not borrow more? But now the situation has reversed. The central bank has started raising interest rates, and the cabinet has injected 21.3 trillion yen into economic stimulus, resulting in government bond yields skyrocketing.

A simple calculation makes it clear: for every 1 percentage point increase in interest rates, the Japanese government will spend hundreds of trillions of yen more annually on interest payments. What about essential expenditures like education and healthcare? Where does the money come from? It can only be through issuing new debt or raising taxes—this has become a vicious cycle with no way out.

**From Tokyo to the World, No One Can Escape**

Japan is not an isolated issue. Its government bond market size reaches $7.8 trillion, and global investors are watching closely. Once yields change, international capital can instantly "change faces."

The previous carry trade model was like this: investors borrowed cheap yen to buy high-yield assets—US stocks, emerging market stocks, various risk assets. Now, with the rising cost of yen financing, this game is no longer playable. Everyone can only scramble to close positions and sell off overseas assets.

The result is that US bonds, European bonds, and other assets come under pressure, and global capital flows are being reshuffled. As major global buyers, Japanese investors' asset allocation changes directly impact international market pricing.