BoJ Shifts Hawkish as Yen Strengthens Against Dollar Amid Bessent Led Rate Hikes
The Bank of Japan (BoJ) has signaled a significant shift in its monetary policy under new leadership, with Scott Bessent now running Japanese monetary policy. The BoJ's hawkish stance is driven by the need to raise rates aggressively to stem the bleeding in the yen. A stronger yen is a key policy goal for the White House, and Tokyo has ceded sovereignty over monetary policy to the US Treasury in accepting Bessent's help defending the yen.
Kazuo Ueda, BoJ member, told reporters that as underlying inflation approaches 2%, they need to pay greater attention to upside risks. This hawkish tone is widespread among BoJ members, with speculation growing that the bank could hike rates at consecutive meetings or resort to larger increments to placate Bessent.
The yen has strengthened significantly against the dollar this week, with two-year yields in Japan rising 13bps, the most in a while. This month's BoJ meeting is seen as a lock for a hike, and the bank has no choice but to telegraph more rate hikes to come.