Japan Yields Top 3% as Yen Weakens

The Japanese government's fiscal pressures are putting upward pressure on borrowing costs as the country's 10-year yield has topped 3% for the first time in over 25 years. This marks a significant milestone, with yields at their highest level since 1996. The jump of 6 basis points on Tuesday is seen as a major shift in Japan's monetary policy.

The yen's weakness is also contributing to the increase in borrowing costs, with the currency hitting its lowest point against the dollar in three sessions. Some traders believe that this could lead to intervention by the government or central bank to prop up the yen. The U.S. and Japan carried out a joint operation to support the yen in July, but these gains have largely faded.

Takuji Okubo, managing director at Japan Macro Advisors, believes that the rise in borrowing costs increases the likelihood of a Bank of Japan (BOJ) rate hike in September. He notes that investors may now be pricing in a terminal rate near 1.75% or higher instead of 1.5%, which is the current benchmark policy rate.