BlackRock said that if the Bank of Japan accelerates the pace of interest rate hikes, it may push Japanese investors to return capital to the country to pursue higher returns, thereby boosting global bond yields. Wei Li, a strategist at BlackRock's research department, and others wrote in the report that “the spillover effect is real,” and there is a risk that the bond market will form a feedback loop. “Japan currently provides a considerable risk-free return.” Over the past few decades, due to the long-term low level of domestic yield, Japanese investors have invested their capital overseas in search of income, and as interest rates rise, some of the capital may return to the Japanese market. At the same time, given continued inflation, Japan's economic situation required a tightening of monetary policy, but increasing government spending and debt more than twice GDP made it more expensive to raise interest rates; “an overly loose monetary policy puts pressure on the yen.” If the yen weakens and the Japanese authorities decide to sell overseas assets, including US Treasury bonds, to support the exchange rate, US bond yields may face further upward pressure. Higher US interest rates may weaken the yen and force the Bank of Japan to raise interest rates faster; rising Japanese interest rates may attract more capital back to the mainland, weaken demand for US treasury bonds, and thus drive up US borrowing costs.

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