With Japan’s long-term interest rates rising to nearly 3%, the yen is depreciating and JGBs are being sold, highlighting developments surrounding the appropriateness of a 4% neutral interest rate and policy responses by Japan and the United States.
The yield on 10-year Japanese government bonds, regarded as the benchmark for Japan’s long-term interest rates, reached the 2.9% range on 18 August, putting it just short of the 3% threshold. The successive increases have occurred amid a global trend of rising interest rates and are not solely a phenomenon specific to Japan.
However, the increase in Japan’s long-term interest rates has been large compared with those in other major economies, and the trend of rising long-term interest rates coinciding with yen depreciation has come to characterize the current market. Some see this as one major factor behind the yen depreciation and JGB selloff.
One factor behind the coordinated intervention by Japan and the United States at the end of July is the U.S. Treasury secretary’s strong concern over rising long-term interest rates. U.S. long-term interest rates have been edging higher recently, approaching the key 5% level.
Amid developments surrounding the intervention, Japan’s Takaichi administration has been cited as posing a risk of accelerating the trend of yen depreciation and JGB selling through its fiscal expansion and policy of maintaining monetary easing. The need to invest the dollar funds obtained through foreign-exchange intervention in U.S. Treasuries is seen as a factor that could curb upward pressure on U.S. long-term interest rates.