I am also very curious about what will happen with Japanese interest rates
To be honest, I am someone for whom Japanese interest rates are even more important (I have invested heavily in Japanese stocks).
The BOJ's dilemma will likely be that while they might want to raise rates aggressively, the economy is a bigger issue than government debt.
Actually, since government debt is yen-based, it can be controlled to some extent, and because they have inflated the yen-based nominal GDP, the real burden rate is actually decreasing rapidly. The real problem is the bonds being issued at currently high interest rates. Under normal circumstances, yen-based funds (from Japanese financial institutions) that would typically flow overseas might find Japanese government bonds (JGBs) more attractive than buying US Treasuries after accounting for the interest rate differential and hedging premiums. Therefore, JGBs are selling well regardless of the interest rates (meaning auction success rates are high). In other words, there is still room to manage the fallout.
Anyway, more than that, the situation in the Hormuz Strait and the expectation of zero growth in the third quarter will likely be bigger concerns.
Also, if Japan raises rates to 1.25% this time, they will have almost finished raising rates according to the dot plot. This is because 1.5% was the target rate.
If they were to raise the terminal rate like the US does from here, it would cause quite a significant impact. However, looking at Japan's growth rate, I wonder if that is even possible; regardless, their population is shrinking by more than 1% per year, so it is a country whose growth rate is doomed anyway...
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