Japan—When Yield Comes Home

The US Treasury and Japan intervened to strengthen the yen, a move that highlights a shifting dynamic in global finance. For years, Japan's low rates made the yen a cheap funding currency for global investors, encouraging Japanese institutions to buy foreign assets.

Now, rising Japanese government bond yields are making domestic investments more attractive. This could reduce the flow of Japanese capital overseas. Even without mass selling, less incremental buying of foreign bonds by Japanese investors could influence global bond market pricing. Watch for how Japanese institutions adjust their foreign asset allocations as domestic yields climb.