[Foreign exchange] Rising long-term yields wipe out the effects of intervention

Japan's 10-year government bond yield at times moved above the 3% threshold. Following the coordinated Japan-US intervention at the end of July, the yen temporarily appreciated into the 155 range, but subsequently turned weaker and moved into the 160 range. This is thought to be linked to rising long-term yields, although there is also concern over movements from the latter half of the 150 range into the 160 range. Figure 1 shows movements in the US dollar/Japanese yen exchange rate and long-term yields.

Even after the coordinated intervention, rising long-term yields have continued to offset the yen's reversal toward appreciation. Since April, the US dollar has strengthened and the yen has weakened, and interventions were carried out 2 times in total. Some believe that the yen could return to a weaker trend as long as long-term yields continue to rise. Figure 2 shows the relationship between the US dollar/Japanese yen exchange rate and long-term yields.

The Japan-US interest rate differential has been narrowing from its level before the coordinated intervention, influenced by expectations of early BOJ rate hikes. Although there were periods when the differential widened again after remarks at Jackson Hole in late August, this has not become a decisive factor indicating the possibility of a return above ¥160. Figures 3 and 4 show movements in the interest rate differential and the 2-year government bond yield, respectively.

There have been reports that US Treasury Secretary Bessent (ベッセント) requested that Japan intervene in fiscal and monetary policy, including ending policies that would lead to yen appreciation. Some believe that concerns over fiscal discipline could offset the effects of intervention. Debate over a review of fiscal policy has emerged as a factor supporting a return to yen weakness.