U.S. yields are not as relevant as Japanese government bond yields

South Korea's wire material discusses the importance of Japan's national debt interest rates over US rates. Both countries' long-term national debt interest rates are reaching record highs. The US 30-year bond rate surpassed 5.3% on July 17th, breaking the previous peak before the 2007 global financial crisis. The driving factors behind the rise in US long-term national debt interest rates include concerns about inflation and structural issues in the US economy, such as high government debt and substantial investments in AI companies.

The US government's debt has surged to $40 trillion, causing higher interest payments. The situation exacerbates as the growth in interest payments accelerates government debt growth, creating a vicious cycle that's hard to break. Another factor that complicates the global interest rate flow is the rise in Japan's long-term national debt interest rates.

On July 18th, Japan's 10-year bond rate hit 2.96%, the highest in 30 years, and the 30-year bond rate reached 4.155%, the highest in 19 years. The surge in Japanese national debt interest rates is stimulating US national debt interest rates, thanks to changes in flows of Japanese overseas investment funds. As global financial markets worry about "possible Japanese currency revaluation," Japanese overseas funds and accumulated savings may return to Japan, fueled by higher hedging costs from the EN-carry trade investment in the US.

For instance, Japan's US national debt holdings decreased for two consecutive months in May and June. In this environment, the repatriation of Japanese overseas funds could become a reality. The deterioration in the investment performance of Japanese overseas funds due to rising US national debt interest rates could lead them to reduce their exposure to US bonds.

Moreover, the additional rise in Japanese long-term national debt interest rates should be closely monitored. The yen-dollar exchange rate is also a critical factor. The US-Japan joint intervention in the foreign exchange market to prevent Japanese national debt sales is to prevent the US national debt market from becoming more volatile.

Even without Japanese-Japanese co-intervention, a further rise in the yen-dollar exchange rate to 160 yen could trigger a speculative frenzy in US national debt rates, leading to an asset market disaster. At present, there is no immediate solution to stabilize US-Japan national debt rates other than the economic slowdown, making the flow of US-Japan national debt interest rates more important than ever from an asset market perspective.