Japan’s 10-year government bond hits 3% for first time in three decades

On Tuesday, Japan's 10-year government bond reached a 30-year high of 3%, driven by persistent inflation and fiscal concerns, despite official efforts to reassure investors. U.S. President Donald Trump has reportedly been closely monitoring the market volatility, sparking speculation that the United States may intervene further to stabilize the situation.

Takahide Kiuchi, an executive economist at Nomura Research Institute, suggested in a report that the U.S. might take measures to support the Japanese economy and prevent the yen from weakening. In July, the U.S. contributed to stabilizing the yen by supporting Japan's massive intervention, with Japan spending nearly $100 billion on that effort alone.

U.S. Treasury Secretary Scott Bessent proposed doubling buybacks of long-dated Treasuries in August, which temporarily provided some market support. Both Bessent and Finance Minister Satsuki Katayama have expressed their intention to intervene in currency markets if necessary, hinting at coordination beyond mere yen buying. Katayama held a meeting with Bessent during the Group of 20 finance chief and central banker meeting in North Carolina, and Bessent also spoke with Bank of Japan Governor Kazuo Ueda.

The Bank of Japan is expected to raise interest rates at its September policy meeting and accelerate the pace of rate hikes. The yen was trading at ¥160 to the dollar on Tuesday, while the Nikkei 225 stock average closed lower by 0.15%. Some reports suggest that fiscal year 2027 budget requests could reach a record high of ¥143 trillion ($890 billion), exacerbating fiscal worries.

The 10-year government bond has increased by 1.4 percentage points since August last year, with higher inflation expectations accounting for 0.5 points of the rise, while other factors, primarily fiscal deterioration risks, are seen as the main drivers.