Japanese bonds and yen pressured after Jackson Hole meeting

Japan’s benchmark 10-year government bond yield climbed to 2.95% on August 31, its highest level since September 1996. The catalyst: Federal Reserve Chair Kevin Warsh’s comments at the Jackson Hole Economic Symposium three days earlier, which reinforced expectations that US monetary tightening isn’t finished. The yen took the hit simultaneously, with USD/JPY pushing through the 160 barrier to trade around 159.85 to 160.20. That’s a psychologically brutal level for Japanese policymakers who have burned through nearly $100 billion trying to defend the currency. What Warsh said and why it matters Speaking on August 28 at the annual central banking gathering in Wyoming, Warsh delivered the kind of measured language that markets read as unambiguously hawkish. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.” Markets immediately repriced expectations, with more than 55% probability now assigned to a rate hike at the upcoming September meeting. For Japan, the math is painfully simple. Every basis point the Fed adds to US rates widens the interest rate differential between American and Japanese gover...