Tokyo: Japan's benchmark 10-year government bond yield climbed above 3% on Tuesday for the first time since 1996, driven by fiscal concerns, expectations of another central bank rate hike, and renewed global inflation pressures. The yield rose around 6 basis points to its highest level in three decades, as bond yields move inversely to prices.
According to Anadolu Agency, investors are weighing mounting pressure on public finances as Japan prepares its fiscal 2027 budget, while renewed hostilities between the US and Iran have fueled concerns over higher energy prices and global inflation. The rise also reflected growing expectations that the Bank of Japan (BOJ) could raise its policy rate as early as September, with the bank's benchmark rate currently standing at 1%.
The yen weakened beyond 160 against the US dollar for a third consecutive trading session, reviving speculation that Japanese authorities could intervene in the foreign exchange market. The currency was trading at around 160.1 per dollar after surrendering much of the gains recorded following a rare coordinated US-Japanese intervention in late July.
US Treasury Secretary Scott Bessent indicated Monday that he expected action from both the Japanese government and the BOJ to support the currency. "I have information that the market doesn't have. And it's my belief that the Japanese government and that the BOJ will do the things that will lead to a stronger yen," Bessent told CNBC.
Bessent also stressed the need for Japan to clearly communicate its path toward fiscal sustainability and further interest rate increases during separate meetings with Japanese Finance Minister Satsuki Katayama and BOJ Governor Kazuo Ueda, as reported by Japanese public broadcaster NHK. Katayama stated that Tokyo and Washington agreed to continue coordinating to ensure "orderly" currency movements and remained prepared to respond to disorderly fluctuations.
Japan's prolonged currency weakness has become a growing concern for policymakers as it raises the cost of imported energy and other goods, adding to consumer inflation.