US Treasury Secretary Scott Bessent's attempt to suppress long-term yields by expanding long-dated bond buybacks is facing an unexpected test from Japan, with Tokyo set to auction 10-year and 30-year government bonds next week. With global fiscal anxieties lingering and long-end yields across major economies climbing in tandem, any signs of weak demand at these two sales could push Japanese yields higher, transmitting pressure to US long-end rates already hovering near two-decade highs through the increasingly tight US-Japan bond market linkage.

Global debt markets have recently come under renewed selling pressure, as concerns over fiscal deficits and inflation compel investors to demand higher risk premiums. The US 30-year Treasury yield fell 4 basis points to 5.24% on Monday, though it had climbed to 5.34% last week, its highest level since 2007. The 10-year Treasury yield has risen roughly 70 basis points since March to around 4.70%. Europe has not been spared either, with German yields on comparable maturities hitting a 15-year high this month and French borrowing costs reaching their highest since 2008. Japan's long-term yields are also approaching record levels, with the 10-year JGB yield rising to about 2.90%, a 30-year peak, while the 20-year yield hovers near its highest since 1996.

With US national debt surpassing $40 trillion and borrowing costs climbing rapidly, markets are increasingly worried about a so-called "doom loop," where a heavier debt burden pushes yields higher, and rising yields in turn exacerbate fiscal strain. Naoya Hasegawa, chief bond strategist at Okasan Securities, noted: "Fiscal concerns and inflationary pressures are common themes across Japan, the US, and Europe. Rising Japanese yields could have global implications."

Facing climbing long-end yields, Bessent unexpectedly announced last week an expansion of the Treasury's buyback program for long-dated securities. Under the plan, starting September 9, each repurchase operation will buy at least $4 billion in government bonds, up sharply from the current $2 billion. The operations run on a quarterly schedule, conducted one to two times per week, and are executed by duration, with each maturity bucket included once or twice per month. While the Treasury stated the expanded buybacks aim to provide better market liquidity, many analysts believe the move is essentially an attempt to control rising long-term yields.

However, the market has not bought into this "buyback card." Following the announcement, Treasuries rallied only briefly before yields resumed their upward trend the next day. Bessent's maneuver is widely viewed by analysts and investors as a failure, much like the earlier joint US-Japan currency intervention, with bond prices quickly giving back their gains. President Donald Trump subsequently said Bessent acted on his own in expanding the buybacks, not at his direction, which has somewhat undermined market confidence in policy continuity. Bessent is scheduled to speak on Monday local time, while Federal Reserve Chair Kevin Warsh is set to appear at the Jackson Hole global central banking symposium on Friday, with both speeches potentially offering more clues for short-term bond markets.

The more immediate challenge for Bessent comes from Japan, which will auction 10-year JGBs on September 1, followed by 30-year bonds on September 3. Coming at a time when global investors are demanding higher compensation for government debt, any sign of weak demand could have spillover effects on the US Treasury market. Andrew Ticehurst, senior rates strategist at Nomura Holdings in Sydney, said: "The market will be closely watching the upcoming JGB auctions. If they go poorly, Japanese yields will rise, which could make the Japanese market more attractive to local investors and put additional upward pressure on US Treasury yields."

Such linkages have precedent. Last year, a surge in Japanese super-long yields directly transmitted to the US Treasury market. Now, with US debt levels enormous and borrowing costs elevated, the risks may be greater. Rinto Maruyama, senior FX and rates strategist at SMBC Nikko Securities in Tokyo, remarked: "If the JGB auctions fail next week and trigger another round of selling, I would not be surprised to see spillover effects hit US Treasuries. Despite Bessent's efforts, US yields could still be pushed higher."

Notably, Japan's 20-year JGB auction on August 20, the day after Bessent's announcement, saw decent demand. Even so, yields on that maturity have since remained near their highest levels since 1996, indicating that market demand has not been strong enough to reverse the upward yield trend.

Bessent's bond market maneuvering may not be a unilateral US effort. Some analysts believe Washington's attempts to contain bond yields could be a prelude to stronger US-Japan coordination to jointly restore market stability, with a focus on fiscal sustainability in both countries. Kyohei Morita, chief economist at Nomura, said: "It is possible that the US and Japan could agree to work together on fiscal sustainability and communicate that signal to the market."

Late July saw the US and Japan jointly intervene in currency markets on a large scale to support the yen, but the currency subsequently gave back most of those gains. Bessent said at the time that intervention requires follow-up policy measures, otherwise it is merely a signal. From a bond market perspective, US-Japan linkages are growing tighter, and the US may increasingly view Japan as one of the epicenters of global bond market volatility.

Takahide Kiuchi, executive economist at Nomura Research Institute, noted in a report that the Trump administration may pay more attention to Japan in order to curb dollar strength, yen weakness, and rising long-term bond yields. "If the 10-year JGB yield hits 3% and the yen weakens to 160 against the dollar again, the US may ask the Takaichi administration to change its fiscal policy direction," he wrote. Japanese Prime Minister Takaichi Sanae has repeatedly voiced support for stimulus policies, advocating expanded investment in crisis management and growth sectors. But with Japanese households already facing cost-of-living pressures, such spending could further fuel inflation, raising market doubts about fiscal discipline.

While some Japanese officials argue that Takaichi's fiscal policy is not "expansionary" and stress that fiscal sustainability remains a priority, the government has yet to fully fund several major economic initiatives, such as plans to cut the consumption tax on food. This has intensified market concerns over Japan's fiscal outlook. Morita believes that if long-term JGB yields rise due to inflation concerns, a certain degree of rate hikes will be needed, and the Bank of Japan will deliver them. However, he also pointed out: "Some action on the fiscal policy side is also needed to support the BOJ's rate hikes." In other words, monetary tightening alone may not be sufficient to stabilize long-term yields, and Japan will need a more credible commitment to fiscal consolidation.