The Japanese 10-year government bond hit 3%, a 30-year high, on Tuesday as inflation and fiscal concerns continued to weigh on the market and despite official efforts to reassure investors and scare away speculators. With the administration of U.S. President Donald Trump keeping a close eye on the volatility, some analysts have started to contemplate the possibility of more pressure from the United States.
In July, the United States pitched in by supporting Japan’s massive intervention to prop up the yen. Japan spent almost $100 billion in that effort alone. Treasury Secretary Scott Bessent said that the United States would double buybacks of long-dated Treasuries in an effort that temporarily provided some support to the markets.
Bessent and Finance Minister Satsuki Katayama have promised to intervene in the currency markets again if needed and have suggested that the level of coordination goes beyond simple yen buying. Katayama met with Bessent on Monday during the Group of 20 finance chief and central banker meeting in North Carolina. Bessent also met with Bank of Japan Gov.
Kazuo Ueda, according to press reports. The BOJ is widely expected to raise rates at its September policy meeting and to accelerate the pace of rate increases. On Tuesday afternoon, the yen was trading at ¥160 to the dollar, while the Nikkei 225 stock average ended the day down 0.15%.
Some media have reported that general account budget requests for fiscal 2027 are projected to be about ¥143 trillion ($890 billion), a record high, further fueling fiscal worries. Japan’s 10-year government bond has climbed 1.4 percentage points since August last year. While higher inflation expectations were responsible for 0.5 percentage points of that move, the primary upside driver is believed to be other factors, led mainly by fiscal deterioration risks, Kiuchi estimates.
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