US-Japan Pact Targets Yen Speculators in Surprise Alliance

US Treasury Secretary Scott Bessent's verbal support for a stronger yen has given Japanese authorities a new tool in their fight against speculative bets against the currency. The US and Japan have been working together to combat market headwinds, with the two nations sharing currency anxiety and forging increasingly close bilateral conversations about exchange rates.

The shared concern over a weak yen, which blunts President Donald Trump's flagship tariffs, has led to a rare alignment of interests between Washington and Tokyo. The US Treasury's semi-annual currency report in July echoed Japan's warning against excessive yen volatility, pledging to continue 'close consultations' with Japan on exchange-rate matters.

The Bank of Japan (BOJ) raised interest rates to a 31-year high of 1% in September, following months of preparation by the two nations. The BOJ's communication on its future rate plans last week was its most hawkish to date, nodding to the US Treasury's currency report that 'monetary normalisation would help reduce excessive exchange rate volatility.'

The joint effort between the US and Japan has raised questions about whether the BOJ can afford to forgo raising rates in September. Analysts predict a near-given September hike, with some viewing intervention as only having a temporary effect in slowing currency moves.