Bessent's Yen Intervention Sparks USDJPY Rout

The USDJPY exchange rate has seen a significant drop due to the influence of US Treasury Secretary Scott Bessent and the Bank of Japan. In a recent speech, Bessent stated that he is playing with 'loaded' cards and that investors can bet against him but have no chance of winning.

Bessent's motivation for defending the yen is purely American, as an excessively weak yen could force Japan to sell US Treasury bonds and push up yields and borrowing costs for American households. The Bank of Japan has also hardened its rhetoric, with BoJ members speaking openly about a 'regime change' in 2026 due to a return of inflation and wage pressure.

The USDJPY exchange rate plummeted from the 164 level at the end of July to around the 153 level, with Bessent suggesting a move down to 150. However, this is where the main risk lies, as a rate hike by the BoJ without hawkish forward guidance could lead to a 'sell the fact' market reaction.

The COT data shows that speculators had built a large short position on the yen, but have reduced their shorts in recent weeks. The market is still net short on the yen, with nearly 60% of the extreme having been squeezed out.