The yen steadied near the 160-per-dollar level on Tuesday after U.S. Treasury Secretary Scott Bessent ramped up pressure on the Bank of Japan to hike rates later this month. According to The Economic Times, the yen last bought 159.81 per dollar, having weakened past the 160 level in the two previous sessions. Bessent told CNBC during a Group of 20 finance leaders' gathering that he believed Japan's government and central bank would take action that leads to a stronger yen, stating "I have information that the market doesn't have." A rare joint intervention from the U.S. and Japan at the end of July provided short-lived relief for the fragile yen, with the currency having since surrendered most of the gains from the joint action. Bessent met BOJ Governor Kazuo Ueda on Sunday during the G20 finance leaders' meeting in Asheville, North Carolina, with a U.S. Treasury official telling Japanese broadcaster NHK that the need for further rate hikes was discussed.
Japan spent a record $96.4 billion over the past month to support the yen after it tumbled to a four-decade low, according to Finance Ministry data. As reported by The Economic Times, U.S. Treasury Secretary Scott Bessent said on Sunday that recent yen moves had been "pretty well contained" and that he expected Bank of Japan Governor Kazuo Ueda to "do the right thing" on monetary policy. Japanese Finance Minister Satsuki Katayama has flagged that Japan would utilize a US Federal Reserve facility that would allow it to use Treasuries as collateral to borrow dollars that could then be used to buy yen. US Treasury Secretary Scott Bessent has also urged the Fed to expand the program to help Tokyo. Japanese officials have repeatedly indicated that it is the speed and disorderliness of currency moves, rather than any particular exchange-rate level, that is key in assessing the need to intervene.
Markets are pricing in a 73% chance of a hike from the BOJ later this month, with analysts suggesting there needs to be much stronger follow-through by the central bank. According to The Economic Times, Oxford Economics now expects the BOJ to raise rates in September and December this year, followed by another increase in April 2027, representing a faster tightening cycle than previously anticipated. Bessent's latest comments increase the pressure on Governor Kazuo Ueda to not only deliver the expected hike but also signal a faster pace of monetary tightening. Charu Chanana, chief investment strategist at Saxo, noted that "For the yen, a September BOJ hike is already heavily anticipated." However, Bank of Japan Deputy Governor Ryozo Himino's latest remarks stopped short of giving a clear signal that the BOJ will raise rates at its September 17-18 meeting. Warsh's defense of the inflation target has reduced a major drag on the U.S. dollar and shifted the focus back to economic fundamentals.
Bessent's message extends beyond monetary policy, representing a challenge to Japan's continued reliance on large-scale fiscal stimulus. According to The Economic Times, Bessent argued that Japan had already achieved the primary objective of Abenomics — ending prolonged deflation — and should now move away from the extraordinary policy measures associated with it. This criticism is particularly significant for Prime Minister Sanae Takaichi's administration, which has backed an ambitious spending programme designed to encourage investment in strategic growth sectors while providing support to households facing higher living costs. Takaichi's government has moved toward greater public spending, including plans to remove spending limits in key growth areas, with domestic media reports indicating that ministries and government agencies were preparing what could be a record level of initial budget requests for the next fiscal year. A prolonged period of slow BOJ tightening combined with expansionary fiscal policy could trigger further selling in the yen and Japanese government bonds, potentially creating broader disruptions across global financial markets.
US and Japanese officials have warned investors they're determined to keep defending the yen if needed. According to The Economic Times, Japanese Finance Minister Satsuki Katayama has flagged that Japan would utilize a US Federal Reserve facility that would allow it to use Treasuries as collateral to borrow dollars that could then be used to buy yen. Prime Minister Sanae Takaichi's administration is pursuing more than 370 trillion yen in public and private investment through fiscal 2040, targeting semiconductors, artificial intelligence, energy security, defense, shipbuilding, robotics, space and other strategic sectors. The Finance Ministry is considering using an assumed interest rate of 3.8% for next fiscal year's budget request, reflecting the pressure that higher JGB yields are placing on public finances. As reported by The Economic Times, investors are now turning their focus to upcoming economic data this week that will help guide whether the Fed will deliver a hike, while markets closely watch Ueda's comments following the G20 meeting for clues about the timing and pace of future rate increases.
