BOJ Hike Exposes Cracks in Facade Amid Bessent's Aggressive Influence

The Bank of Japan's recent rate hike to 1.25% has exposed cracks in its facade, particularly with regards to US Treasury Secretary Scott Bessent's influence on BOJ policy.

Bessent has been inserting himself into BOJ deliberations and yen policy aggressively, but his claims about having an inside line on BOJ policy have not panned out. The yen weakened 1% after Governor Kazuo Ueda spoke on Friday, suggesting markets didn't sense much hawkishness in his remarks.

The BOJ's decision was driven by the need to tackle inflation, which is rising at a 1.9% annual rate despite GDP expanding only 0.4% quarter-on-quarter in the April-June period. Ueda and his board members are under pressure from bond markets, which have been pushing for higher interest rates.

Bessent's track record suggests he may be overestimating his influence on BOJ policy. His predictions about lower oil prices flopped, his bond buyback gambit stumbled, and his bet that Washington would haul in more than $300 billion in tariff revenue in 2025 hasn't aged well.