U.S. Treasury officials have expressed concern over Japan's long-term interest rates, which have risen above 3%. An increase in these rates could lead Japanese investors to repatriate funds invested in U.S. Treasury bonds, especially as the yield on U.S. 10-year bonds has reached its highest level in 20 months.
Erin Brown, the U.S. Treasury's Deputy Secretary for International Affairs, stated in an exclusive interview with the Nikkei that "Japan holds a significant amount of government bonds and agency securities from major countries, which particularly impacts the U.S. market." The interview took place on September 1 in Asheville, North Carolina, during the G20 finance ministers and central bank governors meeting and was reported on September 2.
Japan's institutional investors hold over $1 trillion in U.S. Treasury bonds. If Japanese interest rates rise, there may be a tendency for these funds to return to Japan. The yield on U.S. 10-year bonds has already reached 4.8%, the highest level in 20 months. The Nikkei noted that further increases in rates could burden the U.S. economy.
Market expectations suggest that the Bank of Japan may raise interest rates during its monetary policy meeting on September 17-18. While Brown stated, "I have no intention of directing the central bank," she acknowledged that "market expectations often influence monetary policy." The Nikkei interpreted this as a comment supporting a potential rate hike by the Bank of Japan.
Regarding the yen's depreciation, which is nearing 160 yen to the dollar, Brown remarked, "Both the U.S. and Japan have a common interest in exchange rate stability." In response to concerns that the yen's weakness has worsened due to delayed rate hikes by the Bank of Japan, she emphasized the importance of listening to market signals, stating, "I do not think we are lagging behind, but it is crucial to pay attention to the market's signals."
Meanwhile, Japan's Finance Minister, Shunichi Suzuki, and U.S. Treasury Secretary Janet Yellen met in Asheville on August 31 during the G20 finance ministers and central bank governors meeting. Brown, who attended the meeting, noted that the two countries had candid discussions about their fiscal policies and reaffirmed the importance of fiscal consolidation.
During a press conference on the same day, Suzuki explained to the U.S. side the commitment to significantly reduce the ratio of national debt to GDP. Brown also mentioned Japan's plans to lower the consumption tax on food, stating, "Both countries confirmed their commitment to appropriately address the debt burden."
Brown highlighted that fiscal consolidation is a significant challenge not only for Japan but also for several countries, including the U.S. She indicated that Yellen would soon announce plans to reduce the U.S. budget deficit.
Brown, who previously worked at PIMCO, was appointed in early August. The Deputy Secretary for International Affairs is responsible for direct consultations with the Japanese government on exchange rate issues.
Brown identified rising global long-term interest rates as primarily driven by increased energy prices due to the closure of the Strait of Hormuz. She suggested that if passage through the strait resumes, "inflation expectations will subside, and long-term interest rates are likely to decline again."
* This article has been translated by AI.
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