Bessent Pressures Japan for Stronger Yen, Rate Hikes

U.S. Treasury Secretary Bessent met with Bank of Japan Governor Kazuo Ueda on August 30, sending a strong signal that Washington supports a stronger yen and emphasizes the need to avoid excessive exchange rate volatility.

Bessent 'strongly supported' Japan's adoption of decisive market and monetary policy measures to address the significant undervaluation of the yen, according to the meeting minutes released by the U.S. Department of the Treasury.

The Treasury Department stated that Bessent noted that the yen's weakness is exacerbating domestic inflationary pressures in Japan, with yen depreciation driving up import prices for goods and energy, transmitting higher import costs to domestic prices.

Market expectations now place the probability of a rate hike by the Bank of Japan in September at nearly 100%, citing overnight index swap data that shows the market-implied probability of a rate hike had reached approximately 99% as of September 1.