Japan’s Ministry of Finance is closely monitoring US Treasury bond sales due to concerns that rising yields could trigger further yen depreciation, undermining the government's currency intervention goals, a senior official said [1, 2]. The ministry warned that selling US Treasuries "pushes up yields and could lead to yen depreciation," which works against Tokyo’s efforts to stabilize the yen [1].

Since April 30, Japan likely began intervening in the foreign exchange market to support the weakening yen, marking its first action of this kind since 2024 [2]. Despite intervention efforts, the yen slid to its lowest level since late April [2]. Officials suggested interventions may have involved selling US Treasury bonds, but cautioned this could backfire by pushing Treasury yields higher, further weakening the yen [1, 2].

Finance Minister Satsuki Katayama told the G7 finance ministers’ meeting on May 18 that Japan remains ready to respond “appropriately at any time if necessary against excessive currency volatility” without causing US Treasury yields to rise [3, 2]. She emphasized that fluctuations in crude oil prices continue to affect exchange rates and bond yields. Katayama also noted the meeting discussed "volatility caused by Middle East developments and speculative activity" [3, 2].

Japan holds around $1.17 trillion in foreign exchange reserves as of April-end, including $162 billion in deposits, sufficient to intervene in currency markets if needed [1, 2]. Meanwhile, Japan’s government bond market showed increased foreign selling in April, with net foreign selling of ultra-long-term Japanese government bonds reaching 813 billion yen for the first time since 2024 [4]. This contributed to the 30-year Japanese government bond yield hitting its highest level since the instrument’s 1999 inception, driven by fiscal worries and slow Bank of Japan policy normalization [4].

US Treasury yields have risen sharply in recent weeks, with the 30-year yield briefly exceeding 5.1%, amid inflation fears, hawkish Federal Reserve expectations, and geopolitical tensions related to the Iran war [2, 4]. Foreign holdings of US Treasuries declined in March 2026, with Japan’s holdings falling by $47.7 billion to $1.19 trillion but remaining the largest foreign holder [2].

US Treasury Secretary Scott Bessent publicly urged Japan on May 19 to respect the Bank of Japan’s policy independence and warned that excessive yen volatility is undesirable. He stated that “if the Japanese government grants the BOJ sufficient policy independence, necessary actions will be taken,” reflecting pressure on Japan to allow monetary policy normalization including possible rate hikes [5].

Market volatility and rising government bond yields have led to cautious investor sentiment, affecting both US and Asian stock markets, including declines in Taiwanese tech shares [2, 5].

Japan’s Finance Ministry continues to monitor bond markets and stands prepared to act with yen-buying and dollar-selling interventions that avoid pushing US Treasury yields higher [3, 2]. Finance Minister Katayama’s pledge to respond to excessive currency swings remains in focus as global geopolitical and inflation risks persist.