US-Japan Alliance Takes Aim at Yen Speculators

The US and Japan have joined forces to combat speculative bets against the yen, with both nations sharing concerns about the currency's weakness. A joint effort by the two countries resulted in a rare public alignment of interests in Washington and Tokyo over exchange rates.

The US Treasury Secretary Scott Bessent's verbal support for a stronger yen has given bureaucrats in Tokyo a new tool in their fight against a weak currency, which has fanned import prices and created cost-of-living headaches for successive governments. The U.S. administration was also grappling with rising inflation and Treasury yields, heightening the incentive to support Tokyo's effort to combat market headwinds.

The shared anxiety over the yen's weakness has led to cosy bilateral conversations about exchange rates between US and Japanese officials. This includes frequent talks between Finance Minister Satsuki Katayama and Bessent, who met for three-and-a-half hours in May, including over dinner. The two nations have been coordinating closely on foreign exchange matters.

The BOJ's communication on its future rate plans last week was its most hawkish to date, nodding to a line in the US Treasury's currency report that 'monetary normalisation would help reduce excessive exchange rate volatility'. Analysts read this as all but confirming a September rate hike. Bessent also praised Japan's decisive market and monetary steps to correct the yen's substantial undervaluation.