Japanese Yen weakens as Japan’s 10-year yield hits 3% for first time since 1996

USD/JPY trades around 160.05 on Tuesday at the time of writing, gaining 0.19% on the day, as the Japanese Yen (JPY) remains under pressure against the US Dollar (USD). The Japanese currency fails to benefit from rising domestic bond yields or comments from US Treasury Secretary Scott Bessent supporting a stronger Japanese Yen.

Japan’s 10-year government bond yield reaches 3% for the first time since September 1996. The rise comes amid inflation risks stemming from higher energy prices and speculation that the Bank of Japan (BoJ) may need to raise interest rates more quickly.

The increase in yields also reflects concerns over Japan’s public finances. Prime Minister Sanae Takaichi’s government plans significant investment spending, while a sustained rise in borrowing costs could increase the cost of servicing Japan’s massive public debt. These fiscal concerns appear to limit the support provided to the Japanese Yen by expectations of tighter monetary policy.

Meanwhile, US Treasury Secretary Scott Bessent says on Tuesday that he expects the Japanese government and the BoJ to take measures that would lead to a stronger Japanese Yen. His comments suggest that US authorities would like to see the Japanese central bank further normalize monetary policy.

Japanese Finance Minister Satsuki Katayama also says she met with Bessent, adding that both officials agreed on the importance of orderly Japanese Yen movements for global market stability. The United States (US) and Japan also reaffirm their willingness to continue cooperating on foreign exchange matters.

However, the Japanese Yen remains weak despite these comments and the rise in Japanese yields, allowing USD/JPY to approach the psychological 160.00 level once again. The Japanese currency’s limited reaction suggests that fiscal concerns continue, for now, to offset expectations of further monetary tightening by the BoJ.