Japan government rejects criticism over yen weakness and bond yield rise

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Japan rejects yen criticism

Highlights

Takaichi rejects criticism in parliament linking her leadership to yen weakness and multi-decade high Japanese government bond yields amid foreign exchange interventions.
Takaichi asserts bond issuance will stay unchanged for 2026 despite unveiling a supplementary budget and food tax cut, raising concerns about potential additional debt.
Market experts highlight investor fears over the gap between increased government spending and stable debt issuance, risking further pressure on the yen and higher borrowing costs.

Parliament exchange on currency and rates

As reported by CNBC, citing Reuters, Takaichi tells parliament that she rejects repeated criticism linking her leadership to both yen weakness and rising interest rates in Japan. She makes the remarks in response to opposition lawmaker Yoshifumi Hamano, who asks about the compilation of a second supplementary budget.

Takaichi says her administration will raise confidence in the yen by building a strong economy. Her comments come as yields on Japanese government bonds rise to multi-decade highs and the yen falls to its weakest level since 1986, prompting intervention in the foreign exchange market by Tokyo and even Washington to support the currency.

Budget plans and market implications

Earlier this year, Takaichi announces a plan to cut Japan's food tax and unveils a supplementary budget, adding to questions over whether the country may need to issue more bonds to sustain government spending. She says total bond issuance for calendar year 2026 will remain unchanged from the original budget plan, although experts remain skeptical.

Jesper Koll, expert director at Monex Group, tells CNBC in April, when the supplementary budget is announced, that bond investors are unlikely to overlook a mismatch between higher spending and stable debt issuance. The debate underscores investor concern over Japan's fiscal path as the government seeks to support growth without further undermining confidence in the yen or pushing borrowing costs higher.

S&P Global Ratings’ warning about higher sovereign borrowing risks in a high-rate environment highlighted how persistent geopolitical shocks and elevated fiscal spending can tighten fiscal headroom and raise refinancing strain. The piece noted that when funding costs stay high, rolling over debt becomes more expensive—especially for emerging and frontier markets with heavier interest-service burdens and narrower revenue bases—while inflation driven by energy and food price shocks can further pressure public finances.

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