Japan Rings The Bell

They say that they never ring a bell in markets (to signal a time to buy or sell), but I disagree. Markets and their participants always ring bells, it's just a matter of having your ears tuned to the right frequency.

Point in fact: The Bank of Japan just rang a very loud bell by allowing the 10-year bond yield to rise from 0.25% to 0.50% (see chert below). It marks the end of zero/negative interest rates for the world's third largest economy behind the US and China, so it's not to be ignored.  

Ten Year Japanese Government Bond Yield

Economists and analysts have been largely ignoring Japanese markets, since they were mired in a disinflationary cycle for decades. Thus, the sudden decision to raise market yields came as a shock.  Why did BOJ do this? IMHO because it sees inflation becoming a serious issue, even in Japan, and must now act proactively to contain it (see chart below).

Japan Inflation (Blue) and 10-Year Yield (Red)

Japan's debt/GDP ratio is easily the highest in the developed world, now topping 260% (see chart below). And even though most of it is domestically owned, such enormous debt poses a serious threat if inflation is allowed to rise unchecked and therefore drag interest rates upward.

Japan Government Debt/GDP Ratio

Bottom line: If even Japan is taking global inflation seriously, what about the rest of us? Should we pay attention to the bell, or are we going to ignore it hoping that inflation is just a temporary phenomenon?