Two years ago, when Japan embarked on its path toward policy normalization, I asked whether the country was ready for a “world with interest.” It was a question many were asking as the Asian nation rediscovered inflation and nonzero interest rates after decades without either.

Perhaps the question we should have asked was: Is the world ready for a Japan with interest?

Just look at the selloff in French bonds. Many have pointed the finger at Japanese investors, as my colleague Shuli Ren noted recently. With risk-free rates at home starting to look attractive compared with hedged French debt amid mounting political uncertainty, the incentive to keep money overseas is diminishing. Japan has largely been overweight France for years, but it’s far from the only destination the country’s money poured into over the last quarter-century as yields at home hovered near zero.

That is not to say that all that money is coming home. But domestic investors are becoming more discerning — and the rest of the world will have to pay attention. For years, everyone worried about whether the nation could withstand higher interest rates. Far fewer asked what would happen to the world once Japan no longer had the incentive to lend its money.

France might just be the first casualty. Which other borrowers could Japanese investors suddenly decide look a little too........

© The Japan Times