Against a backdrop of U.S. pressure for higher interest rates and escalating tensions in the Middle East, long-term interest rates exceeded 3%. Reports emerged of an unprecedented intervention to buy yen as market expectations for an accelerated pace of Bank of Japan rate hikes strengthened.
The yield on newly issued 10-year Japanese government bonds temporarily exceeded 3%, reaching its highest level in 30 years. The move is said to reflect the combined impact of fiscal concerns surrounding the Takaichi administration, which advocates an expansionary fiscal policy, U.S. pressure on the Bank of Japan to raise interest rates, and escalating tensions in the Middle East.
Following remarks by the U.S. Treasury Secretary, market views indicating that the Bank of Japan would raise interest rates became more widespread. Some observers said the remarks heightened expectations for a Bank of Japan rate hike and led to expectations of an accelerated pace of rate increases as a measure to curb yen depreciation.
The Bank of Japan raised its policy rate to around 1.0% in June, but some market participants believe it has not yet reached the neutral rate that stimulates economic activity. Market discussions are also continuing over the pace of future rate hikes.
The Japanese and U.S. governments are said to have carried out an unprecedented coordinated intervention to buy yen, strengthening policy responses on both the foreign exchange and interest rate fronts.