Japan's currency and bonds came under pressure on Monday as investors increased bets that the US and Japan would raise interest rates following this weekend's meeting of central bankers at Jackson Hole. The yen briefly weakened past ¥160 a dollar, while yields on short-dated and 10-year Japanese government bonds rose to their highest levels in more than three decades. The moves came after Federal Reserve chair Kevin Warsh struck a hawkish tone in his first appearance at the Jackson Hill gathering of economists and central bankers. Warsh said in a speech on Friday that "concerning" inflation figures meant "the Fed's predominant focus right now should be on prices", suggesting a potential rate increase at next month's monetary policy meeting.

"The front-end sell-off and curve flattening are being driven by a combination of the post-Jackson Hill repricing in US rates and growing confidence that the Bank of Japan could hike as early as September," said Masahiko Loo, senior fixed-income strategist at State Street in Tokyo. The yen's level has been closely watched since authorities in Tokyo spent a record $96.5bn in July and August to defend the currency in co-operation with Washington. It has lost more than half of the gains it made after the intervention.

The market now places the probability of the BoJ raising interest rates next month at more than 90 per cent. Traders said persistent inflation and pressure on the central bank to help support the yen had significantly accelerated its rate-rise plan. US Treasury secretary Scott Bessent told Reuters on Sunday that recent moves in the yen had been "pretty well contained" and he expected BoJ governor Kazuo Ueda would "do the right thing".