The signal of interest rate hikes in Japan has triggered concerns about a "bloodletting" in the US market, and the prospects of Fed rate cuts may change.

As the largest overseas holder of U.S. Treasuries, if Japan tightens its monetary policy, it may trigger a repatriation of domestic funds from U.S. Treasuries and other overseas assets, thereby interrupting the downward trend in U.S. Treasury yields and adding uncertainty to the global market. On Monday, global government bond yields generally rose (yields increase when bond prices fall) after Bank of Japan Governor Kazuo Ueda hinted that there might be a rate hike later this month. This statement surprised investors, who had expected the Bank of Japan to maintain its current stance. Ueda's remarks pushed the yield on Japan's 10-year government bonds up to 1.879%—the highest closing level since June 2008. The yield on U.S. 10-year Treasuries also climbed to 4.095%, having been slightly below 4% earlier in the week.
Wall Street is concerned that rising Japanese bond yields will attract funds away from U.S. investments and trigger an increase in U.S. Treasury yields. Japan is the largest foreign creditor of the U.S. government, holding approximately $1.2 trillion in U.S. Treasuries as of September. This year's decline in U.S. bond yields has been a contributing factor for the Fed to start cutting interest rates again, lowering mortgage rates and boosting the stock market—stocks often benefit from lower Treasury yields because investors can no longer achieve the same amount of risk-free returns simply by holding Treasuries to maturity. The recent signals of Japan tightening its monetary policy have also raised concerns about the Fed's interest rate cut outlook, and the rise in U.S. bond yields will become an obstacle to rate cuts.