Japan's government bond yields surge to 3% for the first time in 30 years... Yen market 'on high alert' after a word from Bessent

▲ Japan, Yen (JPY)/AI Generated Image

Japan's 10-year government bond yields hit 3% for the first time in 30 years, increasing tension in the yen market.

According to CNBC on September 1 (local time), US Treasury Secretary Scott Bessent anticipated that the Japanese government and the Bank of Japan (BOJ) would take measures to strengthen the yen. Meeting with CNBC at the G20 Finance Ministers and Central Bank Governors meeting, he stated, “I have information that the market does not have.” He added, “I believe the Japanese government and the Bank of Japan will take measures that will lead to a stronger yen.”

Bessent's remarks reignited the possibility of a September rate hike by the Bank of Japan. When asked by the host if measures to strengthen the yen meant a rate hike, Bessent replied, “I think the market is pricing that in now.” He explained that foreign exchange market intervention alone cannot change the equilibrium price of the yen and that policy authorities can send signals to the market.

The bond market is already strongly aware of changes in Japan's monetary policy. Japan's 10-year government bond yields rose to 3%, the highest level since 1996. The yen moved around 160 yen per dollar, giving back a significant portion of its gains secured after the joint market intervention by the US and Japan last July. Immediately after Bessent's remarks, the yen strengthened against the dollar.

The United States and Japan jointly intervened in the market in late July to prevent the yen's value from falling. At the time, the yen fell to 163.99 yen per dollar, then rebounded to 155.20 yen immediately after the intervention. However, as the yen has again fallen back to around 160 yen, market attention is shifting from further intervention to the Bank of Japan's interest rate policy.

Bessent repeatedly emphasized that Japan's policy changes would lead to a stronger yen. With Japan's government bond yields rising to a 30-year high and the yen again threatening 160 yen per dollar, the Bank of Japan's next monetary policy decision has emerged as a key variable in the bond and foreign exchange markets.

[Article Key Summary]

-Japan's 10-year government bond yields rose to 3%, the highest level since 1996.

-Scott Bessent anticipated that the Japanese government and the Bank of Japan would take measures that would lead to a stronger yen.

-Regarding the possibility of a Bank of Japan rate hike, Bessent stated, “I think the market is pricing that in now.”

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