Japanese Yen Struggles Amid Rising Bond Yields and BoJ Hike Bets

The Japanese Yen continues to struggle despite rising domestic bond yields and bets on a Bank of Japan (BoJ) rate hike in September. The USD/JPY pair rebounded on Monday after coming under selling pressure earlier, trading around 159.25 after recovering from an intraday low of 158.85.

The Yen's weakness is largely due to the recent joint intervention by Japan and the United States, which briefly pushed USD/JPY towards 155.00. However, the pair has since recovered most of that decline.

Japanese government bond yields have climbed to multi-decade highs, with the benchmark 10-year yield reaching 2.93% on Monday, its highest level since 1996. This would normally support the Yen by making Japanese assets more attractive and narrowing the yield gap with other major economies.

However, higher interest rates and bond yields also raise concerns about Japan's fiscal outlook, as the government carries a heavy debt burden. Sustained higher yields would gradually increase borrowing and debt-servicing costs, limiting their positive impact on the currency.