Bessent Demands Japan Hikes Interest Rates to Combat Weak Yen

Japan is facing a critical day of policy decisions as US Treasury Secretary Scott Bessent has called on the Bank of Japan (BOJ) to end its big stimulus policies and raise interest rates. This comes just a month after a joint US-Japan intervention aimed at propping up the yen, which Bessent said was not disorderly.

Bessent's comments effectively lock the BOJ into raising rates in September as inflation pressures grow, with some analysts predicting further hikes to combat the weak yen. The Japanese economy has been struggling due to a weak currency, pushing up import prices and broadening inflation.

The US is concerned that too-slow rate hikes and loose fiscal policy could trigger a selloff in the yen and Japanese government bonds, potentially spilling over into US Treasury yields. Markets are focusing on what BOJ chief Kazuo Ueda might say after attending the G20 finance leaders' meeting.

Bessent's remarks have also been seen as a swipe at Japan's dovish Prime Minister Sanae Takaichi, who has laid out an ambitious spending plan aimed at boosting investment in growth areas and cushioning the blow to households from rising cost of living. The focus on big spending has unnerved investors and pushed Japanese government bond yields to three-decade highs.