With the yen's slide showing no sign of easing, U.S. Treasury Secretary Scott Bessent held back-to-back meetings with Japan's two top economic policymakers and pressed for higher interest rates.
Japanese Finance Minister Satsuki Katayama and Bank of Japan Governor Kazuo Ueda met with Bessent in Asheville, North Carolina, a day earlier, NHK and Kyodo News reported on the 1st. Asheville is hosting a two-day meeting of Group of 20 finance ministers and central bank governors that began on the 31st of last month.
Citing remarks by Erin Brown, U.S. Treasury under secretary for international affairs, NHK reported that Bessent said it was important for Japan, as its next step, to clearly show the market a path toward fiscal sustainability and higher interest rates. The comments were read as effectively pressing the Bank of Japan to raise rates.
Bessent had earlier stressed in an interview with CNBC that he believed the Japanese government and the Bank of Japan would take steps leading to a stronger yen. On the effect of the unusual joint U.S.-Japan intervention in the foreign exchange market on July 31, he said that while it was not possible to affect the natural equilibrium, what they could do was send a signal. Japan's Finance Ministry said on the 29th of last month that it had spent a record 15.4 trillion yen (about 132 trillion won) over the past month to defend the currency.
The support for the yen did not last long. The yen weakened past the psychologically significant 160 level against the dollar on the day, extending its move from the previous session. Bessent has repeatedly voiced concern that extreme volatility in the yen could push U.S. interest rates higher, making the yen's weakness an important issue for Washington as well. Higher rates would increase borrowing costs for homes and cars, a potential setback for the Donald Trump administration ahead of November's midterm elections.
That is why Bessent is calling for the Bank of Japan to raise rates. The wide gap between U.S. and Japanese interest rates is a key driver of the weak yen, and Federal Reserve Chairman Kevin Warsh struck a hawkish tone at the recent Jackson Hole meeting, saying the inflation picture was worrying. If the Fed raises the U.S. policy rate, the rate gap would widen further and add to downward pressure on the yen.
The prolonged weakness of the yen is also becoming a serious problem in Japan. While the currency's decline has improved the price competitiveness of Japanese exporters, it has sharply raised import costs and dampened domestic consumption.
