The WSJ in an article from May 23rd last year said the following:
Traders said the initial setback for the market came overnight from Federal Reserve Chairman Ben Bernanke, who said the central bank could reduce asset purchases in coming months if U.S. economic data improve.
That created fresh worries for the Japanese government-bond market, because the Fed’s asset purchases help keep down U.S. bond yields, and higher U.S. yields could also push up yields on Japanese bonds. The yield on the benchmark 10-year Japanese government bond climbed to 1.0% in morning trade, the highest since April 2012. It later dropped as the Bank of Japan moved into the market with bond purchases and other measures, and as investors switched away from stocks. The 10-year Japanese yield was down 0.04 percentage point at 0.845% in late Tokyo trading.
So, what has happened since then? Let us take a look at the yield of generic Japanese government bonds 10Y (graph and data from Bloomberg):
Well, government bond yields went up in May last year, but since then came down. It does not look like there is much action, and the usual predictions of Japanese interest rates going up very soon notwithstanding, I would say that the Japanese central bank has the situation well under control. The Fed already cut QE several times – it does not seem to have any effect on the Japenese treasury bond yield (10y) – which is not identical with saying that there is no effect. Whatever happened, bond yields have been stable and this is what Japanese authorities probably had in mind. The US dollar is a sovereign currency, and so is the Japanese yen.
