Japan’s 20-year government bond yield breached its January peak to touch the highest level since 1997, as elevated energy prices add to inflation pressure.

The rate advanced 5 basis points to 3.495%, surpassing the previous high of 3.46% set on Jan. 20. The 10-year and 30-year yields also rose 5 basis points to 2.59% and 3.86%, respectively.

Upward pressure on Japanese government bond (JGB) yields is building as oil prices remain elevated after the U.S. and Iran rejected each other’s proposals to end the conflict, dimming prospects for a near-term resolution. Meanwhile, Treasury yields have also climbed after U.S. inflation accelerated, prompting traders to increase bets on future Federal Reserve rate hikes, while long-end U.K. gilts fell on political risks, creating a negative readacross for JGBs.

“The upward trend for JGB yields is here to stay, driven by anticipated deficit-triggered higher supply pressure, a weak yen and elevated commodity prices,” said Wee Khoon Chong, senior APAC market strategist at BNY. “That will likely fuel inflation pressure down the road.”

A sharp selloff in JGBs in January, driven by concerns over Prime Minister Sanae Takaichi’s fiscal policies, spilled over into U.S. Treasurys. The 20-year sector — a relatively illiquid security that is more prone to volatility — played a key role in that move, amplifying swings in the broader market. The episode drew attention from U.S. Treasury Secretary Scott Bessent, highlighting the risk of cross-market contagion.

The yen has also resumed weakening against the dollar despite multiple rounds of intervention by Japanese authorities, as fundamental pressures and Middle East tensions persist.

While Japanese authorities have continued to decline to comment directly on whether they intervened, people familiar with the matter have said intervention occurred on April 30, and analysis of the central bank’s accounts indicates intervention from then and through the Golden Week holiday was around as much as ¥10 trillion ($63.4 billion).

The slide in the yen is adding to inflation risks and weighing on sovereign debt, increasing pressure on the Bank of Japan to consider raising rates after holding policy steady last month.

Finance Minister Satsuki Katayama said her team is coordinating closely with Bessent on currency policy, while declining to comment on BOJ discussions. Bessent echoed her concerns about excessive foreign exchange volatility and said his team would remain in close contact with Japan’s Finance Ministry.