Bessent's Yen Intervention: US Pressure on Japan Continues

Treasury Secretary Scott Bessent has been exerting pressure on Japan to address its massive fiscal spending and rein in inflation, according to sources. When Japanese Finance Minister Satsuki Katayama called Bessent for help to support the cratering yen in June, he urged Tokyo to first overhaul its policies driving down the currency's value.

Bessent was reportedly concerned that a sell-off in Japanese bonds could spill over to US debt, and wanted Japan to demonstrate consistency between monetary and fiscal policies. The June 22 call helped set the stage for a massive joint intervention by Washington and Tokyo in late July.

The intervention came together quickly, with Katayama negotiating the joint effort with the US while the Bank of Japan met. However, within weeks, the yen slid again, and Washington grew frustrated with Prime Minister Sanae Takaichi's lack of progress in rolling back stimulus and a global spike in bond yields.

Bessent repeated his calls for higher Japanese rates and fiscal tightening at a G20 finance leaders' gathering on August 31-September 1. The US scrutiny prompted Katayama to assure her counterparts that Japan would shed its over-reliance on additional spending and avoid issuing debt to fund tax cuts.

Takaichi reappointed Katayama as finance minister in a cabinet reshuffle on Thursday, in a move seen as placating markets and Bessent. However, there are no signs Takaichi is backing down from her stimulus plans, with budget requests for the next fiscal year ballooning to 143 trillion yen ($916.14 billion).