The yield on Japan's 10-year government bonds has recently climbed to 1.948%, setting a new record since 2007. Even more dramatic is the 30-year bond—while the yield has soared to 3.44%, the bond's market value has already evaporated by nearly half. The yield on the 40-year bond has even broken through the 3.70% mark.

Behind this lies an even bigger problem: for the first time since 2008, the Bank of Japan's interest expenses have exceeded its income. The four major life insurance companies are sitting on $67 billion in unrealized losses from domestic bonds, and by the end of September, local banks had reached a record peak of $21.3 billion in paper losses.

What's the root cause? The Japanese government's debt has swelled to 230% of GDP, and inflation continues to climb. The market is betting on an 80% probability of a rate hike by the central bank in December, but ironically, the central bank holds 52% of all government bonds—making it nearly impossible to sell them off.

For the past thirty years, global investors have grown accustomed to using cheap yen to fuel asset bubbles. Now that this money-printing machine is about to shut down, how intense will the chain reaction be? The answer may be even more dramatic than we imagine.