On May 18, 2026, a man passes an electronic market board displaying 10-year Japanese government bonds (L), an indicator of long-term interest rates in the Tokyo bond market, and the exchange rate of the Japanese yen against the US dollar (C) on a street in Tokyo on May 18, 2026.
Kazuhiro Nogi | AFP | Getty Images
Japan’s benchmark borrowing costs rose to their highest level in 30 years on Tuesday after U.S. Treasury Secretary Scott Bessent indicated he expected action from the Japanese government and the Bank of Japan to support a weaker yen.
of Japan’s 10-year yield It rose 6 basis points on Tuesday, rising above 3% for the first time since 1996, as investors focused on fiscal pressures in the country’s next budget. The resumption of military conflict between the United States and Iran over the weekend reignited inflation concerns and weighed on global bonds. Bond yields move inversely to prices.
The yen was last trading at 160.1 yen to the dollar, and some traders believe it will break above the 160 yen level for the third consecutive day, increasing the possibility of foreign exchange intervention. The United States and Japan conducted an unusual joint intervention in late July to support the yen, but the currency has since given up much of its gains.
“I have information that the market doesn’t have, and I believe that the Japanese government and the Bank of Japan will take actions that will lead to a stronger yen,” U.S. Treasury Secretary Scott Bessent said in an interview on CNBC on Monday.
U.S. officials told NHK that Mr. Bessent, in separate meetings with Japan’s Finance Minister Satsuki Katayama and Bank of Japan President Kazuo Ueda, emphasized the need for Japan to communicate a path toward fiscal sustainability and “also raise interest rates.”
USD/Japanese Yen exchange rate.
According to Reuters, Katayama told reporters at the same event that Japan and the United States agreed to continue joint efforts to achieve “orderly” movements of the yen to ensure stability in global markets, and said they were prepared to respond to “disorderly” market movements.
Years of a weak yen are a concern for Tokyo, as a weaker currency raises import costs and puts pressure on consumer prices.
Analysts say the U.S. government is concerned that Japan, the largest foreign holder of U.S. debt, could finance a major bond sale intervention at a time when long-term borrowing costs are already under pressure. Large movements in the Japanese market could destabilize global markets and lead to a weaker dollar.
The rise in Japan’s borrowing costs on Tuesday reflects the growing likelihood that the Bank of Japan will raise interest rates in September, with the market likely adjusting the final interest rate from 1.5% to 1.75% or higher, Takuji Okubo, managing director at Japan Macro Advisors, told CNBC.
The terminal rate is the highest rate a central bank is expected to shift policy to before it pauses or starts cutting rates in the current cycle. Japan’s standard interest rate is currently 1%.
Borrowing costs of 3% over 10 years are “historically high, but it represents another step for Japan in moving away from the deflation of the past and joining a normal world in which 2% inflation is achievable,” Okubo said.
-CNBC’s Lee Ying Shan contributed to this article.
