US Pushes Japan's BOJ for Rate Hike as September Meeting Looms

Scott Bessent has been urging the Bank of Japan (BOJ) to tighten its monetary policy, particularly in anticipation of their September meeting. Bessent's public campaign includes posts, interviews, and meetings with BOJ Governor Kazuo Ueda, who hinted that the board will weigh policy decisions with upside risks to prices front of mind, suggesting a possible hike this month.

The yen has been trading near 158.72 as traders watch for further intervention after Bessent's initial coordinated action on July 31 drove it up from around 164 per dollar, its weakest since 1986. Japanese government bond yields have also reached mid-1990s highs, with the 10-year hitting 3% on Tuesday.

Budget deficits are a looming concern on both sides of the Pacific, and experts like JPMorgan's Ayako Fujita argue that a credible fiscal message from governments is needed to slow down both the weak yen and rising long-term interest rates. The BOJ needs to hike and deliver a more forceful message to avoid undoing their previous work with respect to the yen.

Prime Minister Sanae Takaichi's efforts to run the economy hot may be complicated by Bessent's very public push for BOJ tightening, which could prompt a forceful reaction from the US if a move is skipped this month. The market is braced for a quarter-point rise on September 17-18, with futures and swaps pricing near 100%.