Japan's benchmark 10-year borrowing cost rose by 6 basis points on Tuesday and briefly topped the 3% line - territory Japan has not seen since 1996. That puts rates at their highest in about 30 years, with investors honing in on fiscal pressures in the upcoming budget. Remember, when prices of bonds fall, yields go up.
The currency side is tense too. The yen was last around 160.1 per dollar, having pushed through the 160 mark for a third straight session - a level some traders think raises the odds of intervention. The U.S. and Japan carried out a rare joint operation to prop up the yen in late July, but much of those gains have faded. For the snapshot crowd: USD/JPY was 160.04, up 0.31 or 0.19%, at 12:13 PM EDT.
Global bonds came under stress as weekend clashes involving the U.S. and Iran revived worries about inflation.
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Why Washington cares: analysts note Japan is the largest foreign holder of U.S. Treasurys, and an intervention funded by significant Treasury sales could come just as long-term U.S. borrowing costs are already under strain. Big shifts in Japan could ripple outward and roil global markets, which could also put pressure on the dollar.
According to Takuji Okubo, the managing director at Japan Macro Advisors, the jump in borrowing costs increases the odds of a BOJ rate hike in September, and investors may now be pricing a terminal rate near 1.75% or higher instead of 1.5%. The "terminal rate" refers to the peak policy rate investors expect in this cycle before the central bank stops tightening or begins cutting. Japan's benchmark policy rate sits at 1%.
Okubo added that a 3% 10-year "is high in historical perspective, but it just means another step for Japan in leaving deflation in the past and joining the rest of the world where 2% inflation is an achievable normal." Tokyo is uneasy about the yen's extended decline since a softer currency makes imports more expensive and pushes up consumer prices.
If you like visuals, there's an embedded chart tracking the 10-year from early January through late August, with roughly 300 data points and a range that runs from about 2% to 3.25%. CNBC also has Bessent's full interview available to watch.
