In a post on social media platform X, Kotak said, “As their government debt and deficits go up, central banks may have no option but to expand balance sheets( print money).”
If so, inflation goes up, short end rates go up, he further wrote. “Be ready for a roller coaster ride in interest rate markets”
ALSO READ |Why Japan’s 30-year high bond yields should worry Indian stock market investors
A surge in global bond yields, led by Japan’s 10-year yield touching 3% for the first time since 1996, may keep Indian markets under pressure as investors brace for tighter global liquidity, higher crude prices and fresh inflation risks. For India, the bigger issue is that bond yields are rising together across major markets at a time when crude oil is high, the Middle East conflict is dragging on and the US Federal Reserve is again sounding hawkish on inflation.
Why Japan matters to India
Analysts say Japan has long been one of the world’s largest pools of savings. For years, low interest rates at home pushed Japanese money into overseas bonds and other global assets. When Japanese yields rise sharply, that equation may change.
If investors can earn better returns in Japan, even a gradual reduction in Japanese demand can push up global bond yields. Higher global yields then make emerging markets such as India less attractive for foreign investors.
Masahiko Loo, senior fixed income strategist at State Street Investment Management in Tokyo, said the move in Japan is more of a normalisation story than a crisis.
“A 10-year JGB yield at 3% is undoubtedly a milestone, but I would view it more as a normalisation story than a crisis story. Markets are repricing for a higher inflation regime, a higher neutral rate and growing confidence that the BOJ has further to go,” Loo said.
“The other underappreciated factor is Japan. The story is not large-scale repatriation, but Japan gradually ceasing to be the marginal buyer of foreign bonds. Less incremental demand from one of the world’s largest pools of savings is helping push term premium higher globally. This is why the selloff feels more like a buyers’ strike than a sellers’ panic,” he said.
When Japan, US and Europe yields rise together, global investors demand higher returns to hold risk assets. This can hit foreign flows into Indian equities and bonds, lift domestic bond yields, put pressure on the rupee and hurt valuation multiples in stocks.