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USD/JPY rebounds as yen struggles despite higher Japanese yields

The pair traded near 159.25 after falling to 158.85 earlier, with the 10-year Japanese government bond yield reaching 2.93% for the first time since 1996.

Reported · Written up by our desk · Major Pairs

USD/JPY rebounded on Monday after earlier selling pressure, with the yen struggling to find traction even as Japan’s bond yields climbed. The pair was trading around 159.25, recovering from an intraday low of 158.85, according to FXStreet.

FXStreet attributed the limited yen strength to a mix of factors including recent joint intervention by Japan and the United States, and higher Japanese government bond yields that rose to multi-decade highs. It also noted that rising yields are occurring alongside concerns that weaker-than-expected Japanese growth and a heavy government debt load could make higher borrowing costs a bigger burden over time.

Japan’s 10-year government bond yield reached 2.93% on Monday, its highest level since 1996. FXStreet said climbing yields are also tied to inflation pressures, as a weaker yen and elevated energy prices worsen Japan’s outlook, with Japan relying heavily on imported energy amid higher oil and gas prices.

The yen outlook is further complicated by growth data, with FXStreet citing preliminary GDP growth of 0.3% quarter-on-quarter in the second quarter, below forecasts of 0.5%, and annualized growth slowing to 1.1% versus an expected 2.0%. FXStreet added that while higher rates could normally support the yen, Japan faces a tradeoff between potential imported-inflation relief and the economic and fiscal strain from higher debt-servicing costs, while the US dollar remains under pressure as markets shift expectations toward the Fed holding rates unchanged in September.

Latest closeUSD/JPY 159.31 ▼0.1%

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