Discrepancies Between Japan's Central Bank and Government Policies Widen, 10-Year Government Bond Yield Rises to 2.805%

On August 10, Japan's 10-year government bond yield rose to 2.805%, intensifying the tug-of-war between the Japanese government and the Bank of Japan over the direction of monetary policy. The market is focused on whether the Bank of Japan can continue to push for policy normalization under the pressure of fiscal expansion. Some analysts believe that if the yield breaks through the 3% mark, it could trigger a new round of bond sell-offs. This rise in yield is primarily influenced by Prime Minister Fumio Kishida's expansionary fiscal policy. The increase in the Japanese government's financing costs has raised market concerns, and the U.S. has also pressured Japan regarding its fiscal and monetary policy direction. Kishida has long supported loose policies similar to "Abenomics" and has urged the central bank to expand its bond purchase program to curb long-term interest rate increases. Kishida's government aides have recently expressed concerns about the Bank of Japan's plan to reduce its balance sheet, suggesting that the pace of tapering may be too fast. Toshihiro Nagahama, a member of the Japanese government's expert panel, stated that Kishida's administration prefers to stabilize the economy through quantitative policies rather than relying on traditional tools like interest rate hikes. The Bank of Japan, on the other hand, is trying to maintain the credibility of its monetary policy normalization, believing that the main factor driving up government bond yields is inflationary pressure rather than a decrease in bond purchases. The central bank has ended its yield curve control policy and views tapering bond purchases as an important step in exiting its ultra-loose monetary policy. Central bank officials have warned that if the market perceives the central bank's bond purchases as a means to lower government financing costs, it could undermine the central bank's independence and its credibility in combating inflation.