A new explanation for the global ruckus in sovereign bonds is becoming popular: Maybe markets and economies are simply returning to normal. After all, weren’t the preceding years marked by an extraordinarily abnormal constellation of economic circumstances, policy responses and borrowing costs?

What’s missing is an acknowledgement that one normalization — the one afoot in Japan — matters much more than the others, because of how extraordinarily far that country’s $4.3 trillion economy had ventured from the status quo. Now that the pendulum is swinging back, the spillovers are showing up everywhere, but the outcome may not look anything like what the doomers describe.

After a quarter century battling deflation and almost a decade of negative interest rates, the Bank of Japan has been raising policy rates (and may do so again this month) and reducing its purchases of sovereign bonds it had conducted to stimulate the economy (which it’s on schedule to do again in the final quarter of the year). As a result, Japan’s 10-year note yields have climbed to the highest in around 30 years. But they’re not unusual given the circumstances; they’re what you would expect in an economy with moderate inflation and positive (though still uninspiring) real economic growth.

Put another way, these rising yields are ultimately a symptom of a healthier Japanese economy that will buttress the world’s growth after years in which the U.S. and China felt like its only two engines. In fact, the $8 trillion bond market, the largest in the world after the U.S.,........

© The Japan Times