Japan 40-year bond yield just crossed 4%. The 10-year hit levels not seen since 1999. Public debt is at 230% of GDP.

The trigger: a snap election call and promises of more debt-funded spending, including food tax cuts. Markets responded by repricing what they had been ignoring for decades — that Japan fiscal position relies on perpetually low rates.

When bond markets lose confidence in fiscal discipline, yields rise. Rising yields increase the cost of servicing existing debt. That forces either austerity or more borrowing, which pushes yields higher. A feedback loop that has been theoretical in Japan for 30 years. It may no longer be theoretical.

Japan is the world largest creditor nation. Japanese institutions hold enormous amounts of US and European debt. If domestic yields become attractive enough, capital repatriation could tighten liquidity globally. The lesson is not Japan-specific. It is about what happens when fiscal credibility erodes in any highly indebted economy.