Benchmark Japanese government bond yields hit their highest level in a decade Monday, but that wasn't enough to halt the yen's continued slide.
The rise in JGB yields and the fall in the yen have put the Bank of Japan in a dilemma of trying to control interest rates and stimulate the economy without letting the yen fall too far.
The problem is partly caused by the U.S., as higher U.S. interest rates relative to those in Japan push the dollar up against the yen.
The yen fell to 149.82 yen to the dollar in intraday Tokyo trading Monday, its lowest level since October 2022. The Bank of Japan's quarterly business climate survey released on Monday showed an improvement in big companies' views of the economy, and the 10-year JGB yield rose to 0.775 per cent, the highest level since September 2013.
The Bank of Japan is worried about rising interest rates too fast. The Bank of Japan has capped the yield on its benchmark government bonds at 1%, and analysts say it does not want rates to rise too quickly.
As a result, the Bank of Japan said Monday it would buy more government bonds with maturities of five to 10 years on Wednesday. The Bank of Japan took similar emergency action on Friday. Those moves tend to push down bond yields and, all else being equal, the yen.
While currency policy isn't the BOJ's direct responsibility, boj Governor Kazuo Ueda has said the central bank is watching the yen closely because of its impact on Japan's economy.
Makoto Noji, strategist at SMBC Nikko Securities, estimates that Japanese interest rates would have to rise by about 0.8 percentage points to support a 10-yen rise against the dollar. But Japan's economy isn't strong enough to withstand those rates, so the yen is likely to stay weak, he said.