Bessent expects Japan to take action to boost yen, signals BOJ rate-hike chance

U.S. Treasury Secretary Scott Bessent believes Japan's government and central bank will take action to strengthen the yen, according to CNBC, suggesting a high probability of a Bank of Japan interest rate increase in September. Bessent's comments came after earlier statements where he expressed confidence that BOJ Governor Kazuo Ueda would act appropriately on monetary policy to combat the yen's decline.

The Treasury Secretary noted that he possesses information not yet reflected in the market, but believes Japan will take measures leading to a stronger currency. When queried about the possibility of higher interest rates, Bessent stated that the market has already factored this into its expectations. Following Bessent's remarks, the yen appreciated against the dollar, reinforcing prevailing market predictions for a BOJ rate hike in September.

The dollar currently trades at 159.73 yen, nearing the 160 level, which heightens the likelihood of yen-buying intervention. Speculation is mounting that the BOJ may adopt more aggressive rate hikes beyond the usual biannual pace after September. Bessent's persistent advocacy for BOJ rate increases has contributed significantly to the market's nearly complete pricing in a September hike.

This move could exacerbate market expectations of regular quarterly rate increases, according to some analysts. The weak yen has inflated import prices and overall inflation, presenting challenges for Japanese policymakers. This trend has been partly attributed to the BOJ's slow rate hike approach, which has kept Japan's interest rate divergence with the U.S. wide.

The two nations previously engaged in a limited yen-buying intervention on July 31 to prevent a further depreciation of the yen and Japanese government bonds from spreading to global markets. Despite the intervention's short-term failure to stabilize the yen, Bessent expressed no concern over recent market movements, indicating the U.S. is not inclined to repeat a similar intervention.