Japanese 30-year government bond yield breaks historic 4%, authorities issue "gentle warning" unable to stop the yen's decline.

Inflation pressure sweeps across the world, and Japanese government bond yields surge to historical highs. On Friday, Japanese government bond yields surged across the board. The 30-year bond yield broke the 4% mark for the first time since it was issued in 1999; the 20-year yield climbed to its highest level since 1996; and the 40-year yield also hit a new high since its issuance in 2007. At the same time, the strange pulsating fluctuations in the yen exchange rate have sparked widespread speculation in the market about "warning interventions" by the Japanese authorities. The record-breaking surge in government bond yields was directly driven by the sharp rise in energy prices due to geopolitical conflicts, which has led to an increase in government borrowing costs globally. In Japan, there are reports that the government is considering preparing a supplementary budget, further intensifying market concerns about fiscal policy. Rinto Maruyama, senior foreign exchange and interest rate strategist at Daiwa Securities, said, "In a country like Japan where interest rates have long been close to zero, the 30-year government bond yield rising to 4% is of historical significance. This indicates that Japan, which has long been plagued by deflation, may be facing sustained inflationary pressure." Data released on Friday also showed that Japan's April corporate goods prices rose to a new high in 12 years, further indicating that the war in Iran is intensifying inflation pressure. Finance Minister Satsuki Katayama reiterated on Friday that the government currently does not need to prepare an additional budget and said that the rise in yields is part of a global trend. However, the market has not relaxed its vigilance - the surge in yields means that the interest costs of Japan's massive debt will significantly increase, and could also prompt Japanese domestic investors to withdraw funds from overseas and have a profound impact on the global market. Strange jumps in the yen: intervention or "warning shots"? Almost simultaneously, the yen against the US dollar has experienced brief sharp increases every few trading days, followed by rapid declines, becoming a regular anomaly in the recent foreign exchange market. During the New York session on Thursday, the yen against the dollar soared by 0.5% in two minutes and then quickly retraced its gains; a similar sharp rise also occurred on Tuesday; and on May 8, it briefly rose by 0.2% before reversing. Traders generally suspect that the Japanese authorities are sending signals through small-scale operations rather than large-scale interventions. Gareth Berry, a strategist at Macquarie Group, pointed out, "My interpretation is that the Japanese Ministry of Finance is uncomfortable with the dollar breaking through 160 yen and wants to prevent the market from testing that level again. These proactive 'pushes' and 'warning strikes' that appeared before the exchange rate reached 160 demonstrate this." It is worth noting that this round of pulsating fluctuations did not come with official warnings or clear signals from the central bank. However, Japan has a tradition of "big intervention + small follow-up" operations - after a large-scale intervention of 5.62 trillion yen at the end of 2022, it implemented follow-up buying operations of around 729.6 billion yen. Nick Twidale, an analyst at ATFX, believes, "This is probably the Ministry of Finance saying 'we're still here'. But they won't keep smashing the market through interventions because it's not effective." The yen's weakness and inflation pressure form a closed loop The weakness of the yen and the rise in government bond yields are two aspects of the same macro picture: the depreciation of the yen exacerbates imported inflation, pushing up government bond yields; and if the yield continues to rise, it may attract some funds back to Japan, supporting the yen. However, this positive feedback loop has not yet manifested. During the Asian session on Friday, the yen against the dollar was at 158.54, still in a weak range. Data shows that Japan's April corporate goods prices rose to a new high in 12 years. Trinh Nguyen, senior economist at Natixis, said, "With global inflation pressures rising and Japanese interest rates at extremely low levels, the yen is used as a financing currency, which will depress the yen and further exacerbate inflation pressures. Therefore, the Bank of Japan will have to raise interest rates to help reverse the yen's decline." However, expectations of rate hikes themselves will raise government bond yields. After keeping policy unchanged last month, the market's bets on a rate hike are increasing for the Bank of Japan. The depreciation of the yen is exacerbating inflation risks and putting pressure on Japanese government bonds. After maintaining policy stability last month, the Bank of Japan is facing increasing pressure to raise interest rates. Policy dilemma: Delaying or taking proactive action? Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank, frankly assessed the recent intervention-style fluctuations, saying, "If last night's fluctuations were also a form of intervention, then I really don't know what the meaning is. It feels like the Ministry of Finance is just delaying time." This statement accurately summarizes the current dilemma facing the Japanese authorities: in the face of global inflation waves and structurally weak yen, intermittent warning interventions and verbal reassurances are increasingly ineffective in reversing the trend; if government bond yields continue to surge, the burden of debt and the risk of capital outflows will sharply increase.