How Bessent, America's bond salesman, cornered Japan on big spending

Scott Bessent, often referred to as America's bond salesman, played a pivotal role in influencing Japan's fiscal policies in June 2022. When Japanese Finance Minister Satsuki Katayama sought assistance from the U.S. to support the weakening yen, Bessent's response mirrored his usual approach: Japan needed to address its fiscal spending and raise interest rates.

Over the months, Treasury Secretary Bessent had privately advised Katayama and other officials to curb massive spending and raise interest rates. However, his primary concern was the potential impact on U.S. debt markets if Japanese bonds experienced a sell-off.

During a June call, Bessent urged Japan to tackle the root causes of the yen's decline, referring to Prime Minister Sanae Takaichi's ambitious spending plans. He emphasized the need for a cohesive monetary and fiscal policy to avoid inconsistencies. This call set the stage for a massive joint intervention by Washington and Tokyo in late July, as Bessent leveraged his leverage over currency and Treasury markets to extract policy concessions from Japan.

Bessent's insistence on higher Japanese interest rates and fiscal tightening became more pronounced in August, as the yen continued to fluctuate and global bond yields surged. At a G20 finance leaders' gathering later that month, Bessent reiterated his calls for higher Japanese rates and fiscal consolidation. However, his message was more forceful than before, signaling Washington's growing dissatisfaction with the remnants of Abenomics, the aggressive spending and low-interest-rate policies championed by Takaichi.

Japan's soaring benchmark yields and mounting pressure on Takaichi's spending ambitions ultimately led to a 30-year high in yields. The U.S. scrutiny of Japan's finances prompted Katayama to assure her G20 counterparts that Japan would reduce its reliance on additional stimulus measures. The alliance between Japan and the U.S. in managing the yen faced headwinds, but the late July intervention demonstrated the deep-rooted collaboration between the two nations.