There's good reason to look to what's happening in Japan for an idea of what the bond market will do, PIMCO CEO Mohamed El-Erian said Thursday.
"Why is that important? Because let's remember that the last bit of the rally has been very much in use by Japan and more generally an indication that central banks are all in," he said. "They're all in."
On CNBC's "Fast Money," El-Erian, who also serves as co-CIO, said that Japan could be providing a tell.
"What's happening in Japan is either a blip or – and this is important – could be an indication of something more fundamental," he said.
If that's the case, he added, "We should be paying a lot of attention to it."
In the next few months, the Bank of Japan will see the result of its monetary policy.
"I think we're going to get growing indication that this hyperactive central bank policy in Japan is becoming increasingly ineffective, so they are going to have to do even more," El-Erian said.
"Critically, it comes down to: Are we going to make this transition that the markets have priced in?"
El-Erian said that the transition from assisted growth to growth "where fundamentals setp up and get behind the wheel" appears to be in trouble.
"Unfortunately, today's data suggests that that transition is not happening quickly enough, and that's the key issue because at some point central banks are going to become ineffective," he said. "If it's after the transition is made, then no worries for investors. If it's before, then we're going to have a hell of a lot more volatility in front of us."