US Treasury Secretary Scott Bessent has signaled expectations that Japanese authorities will step in to support the weakening yen, which helped push the country's benchmark borrowing costs to their highest level in thirty years on Tuesday.

Japan's 10-year government bond yield rose 6 basis points to briefly break above the 3% threshold for the first time since 1996, with investors keeping a close eye on the fiscal pressures stemming from Tokyo's upcoming budget package. Global bonds also came under pressure as renewed military tensions between the US and Iran over the weekend reignited concerns about higher inflation, given that bond yields move inversely to prices.

The yen was last trading at 160.1 per dollar, breaking through the 160 level for a third consecutive session, a threshold that some traders view as increasing the likelihood of currency intervention. While Washington and Tokyo conducted a rare coordinated intervention in late July to support the yen, the currency has since given back most of those gains.

"I have information that the market doesn't have," Bessent said in an interview on Monday. "I expect that the Japanese government and the Bank of Japan will take measures to strengthen the yen." Japanese media, citing a US official, reported that Bessent emphasized during separate meetings with Finance Minister Katsunobu Kato and Bank of Japan Governor Kazuo Ueda that Japan needs to lay out a credible path toward fiscal sustainability while also implementing interest rate hikes.

Kato told reporters at the same event that both sides agreed to continue coordinating efforts to ensure "orderly" yen movements and maintain global market stability, while remaining prepared to respond to any "disorderly" market moves, according to media reports. The yen's multi-year decline has heightened concerns within the Japanese government, as a weaker currency pushes up import costs and adds upward pressure on consumer prices.

Analysts say this situation is also a worry for Washington. As the largest foreign holder of US Treasuries, Japan could resort to large-scale selling of US government bonds to raise funds for currency intervention, especially at a time when long-term borrowing costs are already under strain. Significant volatility in Japanese markets could also disrupt global markets and put downward pressure on the dollar.

Takuji Okubo, managing director of Japan Macro Advisors, said in an interview that Tuesday's rise in Japanese borrowing costs reflects growing market expectations of a September rate hike by the Bank of Japan, with investors potentially pricing the terminal rate at 1.75% or higher, up from the previous 1.5% estimate. The terminal rate refers to the highest level the policy rate is expected to reach before the central bank pauses its tightening cycle or begins cutting rates. Japan's current benchmark interest rate stands at 1%.