Bessent urges BOJ chief to combat weak yen with 'decisive' monetary steps

U.S. Treasury Secretary Scott Bessent voiced strong support for "decisive" monetary steps to combat yen weakness in a meeting with Bank of Japan Governor Kazuo Ueda, ‌the Treasury Department said, cementing the case for a Japanese rate hike this month. In a meeting with Ueda, Bessent also urged the BOJ to anchor inflation expectations and avoid excessive yen volatility through sound monetary policy, the Treasury Department said in a statement on Tuesday.

The remarks, which underline Bessent's recent calls for the BOJ to raise interest rates, bolster the case for the central bank ‌to hike borrowing costs at its next meeting on September 17-18. The two officials met on Sunday at the G20 finance ministers' and central bank governors' meeting in Asheville, North Carolina, ‌the Treasury Department said.

"The Secretary emphasized the importance of sound formulation and communication of monetary policy to anchor inflation expectations and avoid excess exchange rate volatility," the statement said. "Secretary Bessent also expressed strong support for Japan's decisive market and monetary steps to address the substantial undervaluation of the yen and noted the role of yen weakness in contributing to domestic inflationary pressures in Japan."

Ueda and Japanese Finance Minister Satsuki Katayama were attending a two-day meeting of the ⁠G20 finance ​leaders, ending on Tuesday. Katayama also met with Bessent ⁠on Monday, when the two agreed to continue coordinating to achieve "orderly" yen moves. In Japan, the finance ministry has jurisdiction over currency policy with the BOJ acting as its agent.

SEPTEMBER RATE HIKE LOCKED IN A weak yen has ⁠pushed up import prices and broader inflation, causing headaches for Japanese policymakers by increasing households' cost of living.

The U.S. joined Japan in a rare joint yen-buying intervention on July 31, signaling their determination to prevent a ​selloff in the yen and Japanese government bonds from spilling over into global markets. But the move has failed to put a sustained floor under the sagging currency, heightening ⁠market attention to whether the two countries can enter the market again.

Bessent, however, told Reuters that recent yen moves were not disorderly and instead called for BOJ rate hikes, saying he expected Ueda to "do the right thing" to ⁠combat ​yen declines. While the BOJ was already widely expected to lift rates in September as inflation pressures grew, Bessent's comments effectively lock the bank into doing so and put pressure on it to step up hikes going forward.

A recent spike in wholesale inflation, due in part to rising import costs from a weak yen, has added to price pressures and triggered warnings ⁠of an inflation overshoot from the BOJ. Since then, a slew of hawkish BOJ communication has led markets to near fully price in the chance of a September rate hike, ⁠which would follow an increase in its policy ⁠rate to a 31-year high of 1% in June.

A hike in September, rather than in October, could fuel market bets the BOJ will raise rates once every quarter, some analysts said. Under the current tightening cycle that began in 2024, the central bank has raised rates at ‌a pace of roughly twice ‌a year.