As long-term interest rates continue to rise and the yen remains weak, a combination of factors in Japan and the United States is increasing market uncertainty. Some observers expect fiscal management and monetary policy developments to determine what happens next.
Japan's long-term interest rates have risen by more than the policy rate, with reduced Bank of Japan purchases of government bonds, rising inflation expectations and overseas interest rate trends cited as contributing factors. The Takaichi administration's expansionary fiscal policy may also be increasing uncertainty over future fiscal management.
At the same time, the yen continues to weaken, and the combination with rising interest rates is considered difficult to explain. Although it is not in itself difficult to explain why the yen would continue to weaken even after foreign-exchange intervention, some observers believe that any effect is unlikely to last unless the underlying macroeconomic factors change.
Long-term interest rates are also rising in the United States, with the yield on 30-year U.S. Treasuries temporarily reaching 5.31% in August. This has reportedly been aimed at maintaining stability in the bond market amid concerns about widening fiscal deficits. Some observers also view U.S. Treasury Secretary Bessent's remarks as signaling interest in Japan's inflation situation and the normalization of monetary policy.
The current rise in interest rates is considered not merely a Japan-specific problem but a phenomenon occurring across international financial markets. Some observers have also suggested that markets may be increasingly alert to additional risks surrounding the outlook for Japanese interest rates, the yen exchange rate and fiscal policy.