Stock prices and long-term interest rates in Japan have climbed rapidly of late. On Monday, the Nikkei index hit a 10-month high of 9,795 points while yields on 10-year benchmark government bonds topped 1 percent, more than double the level of a month earlier. That is good news if it signals an upturn in economic activity. Normally, higher stock prices and interest rates reflect an improvement in corporate balance sheets and a growing credit demand from businesses and individuals.

But these are not normal times. The stock market rally hardly reflects economic reality in Japan. More likely it mirrors optimistic expectations for the U.S. economy. The uptick in long-term interest rates, coupled with the drop in government bond prices, might further reduce credit demand. Some crystal gazers see a bond-market crash coming.

Hope is mingled with fear in the stock and bond markets. Optimists believe Japan's near-moribund economy is finally coming out of a long tunnel. Pessimists think the chronic slump, already more than a decade old, will drag on. Amid all these uncertainties, one thing is clear: More than a decade of expansionary fiscal and monetary policy has created a huge glut of money in the market.