Summary
- US Treasury Secretary Scott Bessent said he strongly supported Japan’s decisive market and monetary policy actions to address the yen’s substantial undervaluation.
- Markets took Bessent’s remarks as backing for a BOJ rate hike, with the probability implied by overnight index swap (OIS) pricing for Sept. 18 rising to about 99%.
- Because the Japanese government has prioritized low borrowing costs, Bessent’s support for a stronger yen and additional rate hikes could diverge from the Japanese prime minister’s policy stance.
Forecast Trend Report by Period
US Treasury Secretary Scott Bessent voiced strong support for Japan’s monetary policy response to reverse yen weakness after meeting Bank of Japan Governor Kazuo Ueda, bolstering expectations for a BOJ interest-rate increase on Sept. 18.
Bloomberg reported on Sept. 1 that the Treasury, disclosing details of the meeting, said Bessent “expressed strong support for Japan’s decisive market and monetary policy actions to address the yen’s substantial undervaluation.” The two met on Aug. 30 in Asheville, North Carolina, where they were attending a gathering of Group of 20 finance ministers and central bank governors.
Bessent also said yen weakness was contributing to inflation pressure in Japan. The Treasury said he stressed the importance of setting monetary policy appropriately and communicating with markets to anchor inflation expectations and avoid excessive foreign-exchange volatility.
Markets took Bessent’s remarks as support for another BOJ rate increase. The probability of a Sept. 18 hike implied by the overnight index swap, or OIS, market rose to about 99% as of Sept. 1, more than double the level a month earlier.
Bessent has also recently signaled the need for further monetary policy action in Japan. In a CNBC interview on Aug. 31, he said he was confident the Japanese government and the BOJ would take steps that would lead to a stronger yen.
The meeting also drew attention because it came after the US and Japan made a rare joint intervention in the foreign-exchange market on July 31 to defend the yen. Bessent had previously said he looked forward to meeting Ueda after the coordinated intervention, signaling the possibility of follow-up action by the BOJ.
Still, the Japanese government has placed relatively greater emphasis on keeping borrowing costs low. That raises the possibility that Bessent’s support for a stronger yen and additional rate hikes could diverge from the policy stance of Japanese Prime Minister Sanae Takaichi.
The BOJ is scheduled to hold its monetary policy meeting on Sept. 18. Ueda is set to speak to reporters after the G20 meeting ends and explain the outcome of the gathering and related matters.
Suehyeon Lee
shlee@bloomingbit.ioI'm reporter Suehyeon Lee, your Web3 Moderator.