A worrying signal has recently emerged from Japan's government bond market—the 2-year government bond yield has broken through 1.03%, reaching a new high since the 2008 financial crisis.

What lies behind this figure? The market is making its stance clear in the most direct way: investors are not buying into the Japanese government's massive ¥21.3 trillion (about $135.4 billion) fiscal stimulus package. Government bonds are being sold off, yields are soaring—in plain terms, confidence is eroding.

Two critical issues are now on the table:

First, fiscal capacity is stretched to the limit. Japan’s debt stands at 250% of GDP, and interest payments alone are about to consume a quarter of the annual tax revenue. Launching another large-scale spending spree under these conditions? The market’s response is honest—better to exit early.

Second, monetary policy is shifting. The Bank of Japan’s governor has sent increasingly clear signals of a rate hike, and the market now sees an 80% probability of a December rate increase. The era of negative interest rates is nearing its end, and the faucet of cheap yen is about to be turned off.

What’s more alarming is the potential global spillover effect. As one of the world’s largest creditor nations, if Japan’s funds start flowing back home on a large scale, those asset pools fattened by yen carry trades—US stocks, US Treasuries, even the crypto market—could all face liquidity tightening.

The distant thunder could strike your portfolio at any moment. When a country can’t even sell its own government bonds, it’s time to reassess the safety margin of any paper asset.