Meanwhile in the Far East

A meaningful shift is unfolding in the Far East—at least in the bond market. For the first time in two decades, Japanese 10-year government bond yields are higher than Chinese equivalents.
Hold on a second: is this the same Japan whose economy has endured a decade-long “ice age” of deflation and subdued growth? Is this the same Japan where investors have long borrowed cheaply in yen and recycled those proceeds into higher-yielding assets abroad via the carry trade?
Now, the bond market is demanding higher long-term yields, reflecting a regime that looks less “permanently disinflationary”: firmer nominal growth expectations, a return of wage dynamics, and at least some inflation persistence. In parallel, while there is renewed excitement around parts of the Chinese equity market, China still needs to get to grips with its property sector and the broader deflationary overhang.
A world turning upside-down in the Far East—where investors will need to adapt their assumptions on rates, currency dynamics, and cross-border flows.