TOKYO--Growing bets on an imminent rate hike sent the benchmark 10-year Japanese government bond yield to a fresh three-decade high on Monday, extending a rise driven by concerns over the nation's fiscal health.
The 10-year JGB yield touched 2.930%, the highest level since September 1996. The policy-sensitive two-year yield also jumped 4.0 basis points to 1.690%, while the five-year yield reached as high as 2.170%.
Markets are rapidly pricing in tightening by the Bank of Japan at its next meeting in September, as a weak yen threatens to push up inflation. Speculation that a rate increase is coming heightened after Tokyo and Washington jointly intervened in the foreign-exchange market to prop up the yen.
Following the rare coordinated move, Treasury Secretary Scott Bessent implied that he expected BOJ Gov. Kazuo Ueda to take appropriate action, bringing forward market views on the timing of the central bank's next hike.
"I do believe that part of the inflation uptick in Japan was a result of the weak yen and also energy prices," Bessent said in an interview with national broadcaster NHK earlier this month. "I am sure that Gov. Ueda will do what is best for the Japanese economy."
The dollar was last trading around 158.90 yen on Monday, compared to the near-164 area that triggered intervention.
Even with intervention, analysts see little scope for the yen to truly rebound unless the Japan-U.S. rate gap improves in the currency's favor. Prime Minister Sanae Takaichi's loose fiscal policy has also added pressure on the yen.
As of Monday afternoon, the Overnight Index Swaps market was pricing in a nearly 80% chance of BOJ action in September.
"If markets move to fully price in a September rate hike, yields are expected to rise further, and there is a fair chance this could materialize ahead of the BOJ's September meeting," said Mizuho Securities strategist Noriatsu Tanji.
Next on BOJ watchers' radar is a speech by Deputy Gov. Ryozo Himino the following week, which will be scrutinized for any hints of earlier action.
Write to Megumi Fujikawa megumi.fujikawa@wsj.com
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