The US government is expressing concern over Japan's bond market and the depreciation of the yen. Japan remains the largest foreign holder of US debt, with holdings exceeding $1.1 trillion as of May. To support the yen, Tokyo has reportedly spent approximately $167 billion this year, partially by selling US Treasury bonds, which contributes to upward pressure on US yields.
The 10-year US Treasury yield reached 5.18% on September 24. Meanwhile, the Bank of Japan raised its key interest rate to 1.25% on September 18, the highest level since 1995. Japan's 10-year bond yield hit a 30-year high of 3.115% on Friday, while the two-year yield reached a 31-year high of 1.975% on Monday. Officials are considering shifting state pension fund investments into domestic bonds.
The yen carry trade, which involves borrowing in yen to fund riskier assets like Bitcoin, remains a significant factor. In August 2024, a sudden rise in the yen led to a market selloff, with the TOPIX index falling 12% and Bitcoin dropping up to 20%. The Bank for International Settlements estimated that carry bets totaled $250 billion before that event. Bitcoin was trading at $82,873 on Monday.
President Donald Trump discussed the yen's depreciation with Prime Minister Sanae Takaichi, noting that the currency's weakness complicates US trade. Finance Minister Satsuki Katayama indicated that future market interventions might utilize a Federal Reserve lending line rather than selling additional US Treasury holdings. The US and Japan previously conducted a joint intervention to buy yen on July 31.
