NEW YORK (CNN/Money) - Stunned by the big turn U.S. interest rates have taken over the past three weeks? It ain't nothing compared to what's been happening in Japan.

After crashing to a low of 0.43 percent (no, that's not a typo), yields on Japan's benchmark 10-year government bond began to rise. At the beginning, investors thought it was nothing but a minor adjustment -- everybody had written off Japan's economy long ago, and the notion that the country's interest rates could rise significantly was anathema.

But then they kept on rising, and a tinge of nervousness crept into the Japanese bond market that maybe the long era of plunging yields was coming to an end. Tuesday's Tankan report -- a closely watched measure of business sentiment that showed large manufacturers at their least pessimistic level in two years -- pushed the market's worry, and bond yields, higher still.

Then came the government's ¥1.9 billion bond auction Thursday, a huge disappointment. With relatively few investors interested in the new issue, the yield on the 10-year bond shot up 0.23 percentage points to 1.12 percent.

The big drop in Japanese bonds could have major implications. For years now investors have used Japan as a source of cheap capital for investments elsewhere. In what is called the carry trade, they borrow at low Japanese rates and buy higher yielding issues, like U.S. Treasurys or European bonds. And because the Japanese government is so intent on not allowing the yen to strengthen against the dollar, they don't have to worry too much over getting hammered by currency changes.

But the sharp rise in Japanese bond yields throws that equation out the window, forcing them to unwind the carry trades. To do that they have to sell the stuff they bought and then pay back their creditors. If, heaven forfend, they've used leverage to maximize their investments return, things can get really messy. That's what happened in 1998, when the hedge fund Long Term Capital Management blew up.