Japan’s 10-year government bond yield reached 2.945%, marking its highest level since September 1996. Concurrently, Japan’s 30-year yield hit 4.115%, while the yen slipped back toward 159 per dollar, reversing nearly half of its recent rescue rally.
The rise in yields follows climbing prices, with core inflation reaching 1.8% in July compared to 1.6% in June. Excluding food and fuel, the figure stood at 1.9%. Traders interpret these figures as an indicator for the Bank of Japan, which meets on September 17 and 18, with economists widely expecting a policy rate increase from 1% to 1.25%.
Global Markets Investor analysts noted that Japan's bond market is signaling a major warning as yields surge past 2.95% for the first time since 1996, while the yen relinquishes intervention-driven gains and adds potential pressure on Treasuries.
For years, investors utilized low-cost yen borrowing to fund purchases of riskier assets in what is known as the carry trade. The Bank for International Settlements estimated yen loans to offshore non-banks at approximately $250 billion, with broader measures reaching about $500 billion. Rapid appreciation of the yen can quickly turn these positions into losses, a dynamic demonstrated in August 2024 when Bitcoin dropped from near $64,600 to $49,000 on August 5, and Tokyo's TOPIX index fell 12% in a single session.
In early August, Tokyo and Washington conducted a joint intervention, with Goldman strategist Karen Fishman estimating that Japan spent roughly $85 billion over two days. Japan funded part of this defense by reducing its US Treasury holdings by $26.4 billion in June down to $1.117 trillion. Meanwhile, Bitcoin has traded near $77,355 amid these macroeconomic developments, as market observers note that historical market stress typically stems from a surging yen rather than a sinking one.
