BoJ Rate Hike Bets Weaken Yen Amid Rising Bond Yields

The Japanese Yen has been struggling to gain traction despite a weaker US Dollar and rising bond yields. The USD/JPY pair rebounded on Monday after coming under selling pressure earlier in the day, trading around 159.25.

Despite joint intervention by Japan and the United States and a rise in Japanese government bond yields to multi-decade highs, the Yen has struggled to appreciate. The benchmark 10-year Japanese government bond yield touched 2.93% on Monday, its highest level since 1996.

The BoJ is expected to raise interest rates as early as September, which could support the Yen by making Japanese assets more attractive and narrowing the yield gap with other major economies. However, this also raises concerns about Japan's fiscal outlook, as sustained higher yields would gradually increase borrowing and debt-servicing costs.

Weaker-than-expected Japanese growth data add another challenge for the BoJ, with preliminary GDP expanding 0.3% QoQ in the second quarter, below the 0.5% forecast.