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

US Treasury Secretary Scott Bessent indicated on August 31 that Japan's government and central bank will likely take measures to strengthen the yen, potentially leading to a Bank of Japan (BOJ) interest rate hike in September, according to CNBC. Bessent's statements came after he previously expressed optimism about BOJ Governor Kazuo Ueda taking the appropriate actions in monetary policy to address the declining yen.

The US official claimed he had information that was not publicly available, and he believed the Japanese government and BOJ would implement policies to support a stronger yen. When asked about the possibility of interest rate increases, Bessent stated that the market had already accounted for this scenario. The yen strengthened against the dollar in response to Bessent's comments, highlighting the prevailing market expectation that the BOJ would raise rates at their upcoming meeting in September.

Bessent met with BOJ Governor Ueda and Japanese Finance Minister Satsuki Katayama on August 30 and August 31, respectively. During these discussions, he urged Japan to continue raising rates and to demonstrate a clear path to fiscal sustainability, as reported by Erin Browne, the undersecretary for international affairs at the US Treasury Department.

While Reuters has not independently verified the meeting details, sources suggest the BOJ may raise rates during the September 17-18 meeting and potentially adopt a more aggressive approach to rate hikes beyond that point. Notably, the BOJ had increased interest rates in June. Some analysts believe a rate hike in September, rather than in October, could prompt markets to anticipate a quarterly rate hike from the BOJ.

A weaker yen has contributed to higher import prices and broader inflation, posing challenges for Japanese policymakers. The BOJ's slow rate hike pace has exacerbated the divergence between Japanese and US interest rates. In July 31, Japan and the US conducted a joint yen-buying intervention, aiming to prevent a rapid decline in the yen and Japanese government bonds from affecting global markets.

However, this intervention did not provide a lasting support for the yen, and Bessent told Reuters that he did not consider recent yen movements to be chaotic, implying that Washington was not inclined to participate in another intervention to bolster the currency.