By Mariko Sakaguchi
TOKYO, Aug 21 (Reuters) - Actions by the U.S. Treasury to cap a surge in long-term rates have thrown a lifeline to Japanese bonds, but analysts say it may only delay the inevitable crossing of the closely watched 3% yield threshold.
The 10-year Japanese government bond yield JP10YTN=JBTCclimbed to a three-decade high of 2.945% on Tuesday, underscoring the strain rippling through global debt markets as investors grapple with persistent inflation and mounting concerns over government debt burdens.
After long-term U.S. yields hit a 19-year high this week, the Treasury Department announced increased buybacks, followed up by assurances of liquidity support from Treasury Secretary Scott Bessent.
The move helped global bonds recover, at least temporarily, but analysts warn the forces driving Japanese yields higher remain firmly in place.
Those include a weak yen and loose fiscal policy, according to Mari Iwashita, executive rate strategist at Nomura Securities.
"It would not be surprising if the long-term rate rose to around 3.3%," Iwashita said.
With the Middle East crisis showing no signs of abating and oil prices staying high, inflation remains a headwind for bond markets globally. Even before the Iran war, however, Japanese government bonds and the yen were on the back foot as concerns grew that stimulus policies advocated by Prime Minister Sanae Takaichi would further worsen the country's strained fiscal position.
The Treasury's intervention has also fuelled speculation that Tokyo could deploy similar measures to support the JGB market. However, U.S. yields have already started to drift higher, and Bessent's buyback strategy "will not be a fundamental solution" to the trend of rising long-term rates, said Yuki Fukumoto, head of the financial research department at NLI Research Institute.
Short-term JGBs are under pressure too, with yields near multi-decade highs on increasing bets for tightening by the Bank of Japan to protect the yen and tame inflation.
"The phase of rising interest rates is not over," said Keisuke Tsuruta, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.
(Reporting by Mariko Sakaguchi. Writing by Rocky Swift in Tokyo
Editing by Shri Navaratnam)