Japan’s 10-year government bond yield recently reached its highest level in 30 years as persistent inflation, Bank of Japan (BOJ) rate increases and concerns over Japanese government spending pushed bond prices lower. The BOJ began raising rates in 2024 after decades of ultra-low policy, and increased them again last week, its second hike this year. Investors are also assessing Japanese Prime Minister Sanae Takaichi’s plans for tax cuts and higher spending, which could increase borrowing needs amid Japan’s enormous debt load. Japan’s financial markets have global significance because it is the largest foreign holder of U.S. Treasuries. The U.S. Treasury intervened with Japan in late July after the yen fell to its lowest level against the dollar in 40 years. Analysts say the intervention was partly intended to reduce the risk that Japan would sell dollar assets, including Treasuries, to support the yen. Treasury data showed Japan reduced its Treasury holdings in May, June and July. A stronger yen could also disrupt the carry trade (borrowing cheaply to invest in higher-yielding assets), potentially forcing investors to sell stocks and Treasuries. President Donald Trump and Japanese Prime Minister Sanae Takaichi are expected to meet Tuesday in New York City during the UN General Assembly, placing the market relationship back in focus.