Bessent's yen push firms case for BOJ September hike from 1%

U.S. Treasury Secretary Scott Bessent's public pressure has all but locked the Bank of Japan into a September rate hike from its 1% policy rate, raising questions about Washington's sway over domestic policy.

"Intervention is a strategy that buys time and could end up being a waste without being followed up with BOJ rate hikes," said Kazuo Momma, executive economist at Mizuho Research Institute and a former BOJ executive. "The fact the United States joined in the intervention is very grave."

The yen rallied about 4% against the dollar after the rare joint Tokyo-Washington intervention last week, to around 158 per dollar. Bessent told public broadcaster NHK he was sure Governor Kazuo Ueda will "do what is best" for Japan's economy, and urged Tokyo in a CNBC interview to follow intervention with "policy and fundamentals" to address what he called a substantial undervaluation of the yen.

A September hike would fuel market bets the BOJ raises rates once a quarter rather than roughly twice a year, with knock-on effects for JGB yields and the currency. All eyes turn to a Bessent-Ueda meeting at the U.S.-hosted G20 finance leaders' gathering at end-August, ahead of the September 17-18 policy meeting.

Intervention Alone Won't Hold the Yen

The BOJ ended a decade-long stimulus program in 2024 and has raised rates several times, including in June, when it took its policy rate to a 31-year high of 1%. The slow pace of hikes has been blamed for the yen's slide to 40-year lows by keeping the Japan-U.S. rate gap wide. A weak yen has pushed up import prices and, combined with rising fuel costs from the Middle East conflict, raised households' cost of living.

The last time the BOJ faced comparable external pressure to act on the currency was in 2022, when it intervened unilaterally to support the yen after it weakened past 150 per dollar. That intervention faded within weeks and the yen resumed its slide — a precedent that shows why analysts say rate hikes, not intervention, are the durable fix.

Fitch Ratings analysts said the yen's appreciation is likely to falter without BOJ rate increases, with the dollar-yen rate having reached Fitch's end-2026 forecast of 156. Fitch expects the BOJ to wait until October and then hike more quickly than markets anticipate. Any perception the central bank is falling behind would likely trigger renewed yen weakness.

A Reuters poll of about 60 FX strategists found nearly 95 percent said future Japanese currency interventions alone would not sustainably curb the yen's weakness, with nearly all of those saying the BOJ would have to raise rates to make a lasting impact. Median forecasts showed the yen weakening to 159 per dollar in three months before gaining to 157 in six and 154 in a year.

September or October?

A majority of analysts polled by Reuters expect the BOJ to raise rates again by December and possibly as soon as October. "While the BOJ did open the door for a September rate hike, it probably wants to wait until October to spend more time scrutinising the economic impact of past rate increases," said Ayako Fujita, chief Japan economist at JPMorgan Securities. "Hiking rates in September would also turn the December meeting into a live one."

BOJ Deputy Governor Ryozo Himino will deliver a speech in Japan on August 27 that could offer clues on whether the central bank could hike in September. Chief Cabinet Secretary Minoru Kihara declined to comment on Bessent's remarks, saying specific monetary policy means were left to the BOJ to decide.

This article is for informational purposes only and does not constitute investment advice.