U.S. Treasury Secretary Scott Bessent believes the Japanese government and the Bank of Japan (BOJ) will implement measures to bolster the yen. In an interview with CNBC during a G20 finance leaders' gathering in Asheville, North Carolina, Bessent stated, "I have information that the market doesn't have, and it's my belief that the Japanese government and the BOJ will do the things that will lead to a stronger yen." This sentiment reinforces market expectations that the BOJ will likely raise interest rates at its upcoming September policy meeting.
Bessent's comments followed earlier remarks where he expressed confidence that BOJ Governor Kazuo Ueda would "do the right thing" regarding monetary policy to counter the yen's depreciation. When asked if these actions would involve raising interest rates, Bessent indicated that the market was already pricing in such a move. The yen saw gains against the dollar after these statements, with the dollar trading around 159.73 yen, still close to the 160-per-dollar level often seen as a trigger for intervention.
Sources suggest the BOJ is poised for a rate hike as early as its September 17-18 meeting and may pursue more aggressive hikes beyond the current pace of roughly twice a year. Bessent's consistent calls for BOJ rate increases have been a significant factor in shaping market expectations for a September hike. The central bank had previously raised rates in June. Analysts propose that a September hike, rather than an October one, could lead to market speculation of quarterly rate increases.
The weak yen has contributed to rising import prices and broader inflation in Japan, posing challenges for policymakers. This weakness is partly attributed to the BOJ's cautious approach to rate hikes, which has maintained a substantial interest rate differential between Japan and the U.S. In a rare move on July 31, Japan and the U.S. conducted a joint yen-buying intervention, signaling their commitment to prevent a yen selloff and potential spillover into global markets.
Despite the recent yen movements, Bessent characterized them as "pretty well contained," suggesting they were not considered disorderly enough to necessitate another joint intervention. He also mentioned that the U.S. Treasury market has been the best-performing bond market this month, with the 30-year yield falling and the 10-year yield remaining flat, indicating strong performance relative to other major bond markets.
