Japan's Return to Inflation Is Changing Global Markets

Northern Trust /

11-08-2026

Northern Trust's Weekly Economic Commentary argues that Japan is entering a fundamentally different economic era, with the return of inflation, higher interest rates and policy normalization carrying implications far beyond its borders.

After decades of ultra-loose monetary policy, Japan is experiencing sustained inflation, rising wages and higher interest rates, prompting the Bank of Japan to gradually normalize policy.
With public debt exceeding 200% of GDP, higher borrowing costs are placing fiscal sustainability under greater scrutiny, even as stronger nominal growth has improved tax revenues.
Rising Japanese bond yields and a stronger incentive to invest domestically could reshape global capital flows, particularly given Japan's position as the largest foreign holder of U.S. Treasuries.

Read the full report for a deeper analysis of Japan's economic transformation and its implications for global investors.