8 hrs ago
Bessent Backs Yen Rally as Japan Weighs Another Rate Hike
The yen is Japan’s currency, and it has recently become stronger against the dollar.
Scott Bessent, a senior US finance official, has supported Japan in efforts to strengthen the yen.
His statements made investors think the yen could keep rising.
The Bank of Japan is expected to raise interest rates by a small amount this week.
That rate increase could also support the yen.
Japan’s government may prefer the yen to stay near 150 per dollar, while Bessent appears to favor further gains.
Other large investors may also buy more Japanese bonds.
However, the currency market is enormous, so officials cannot control it forever.
The article says economic fundamentals will eventually determine what happens.
Treasury Secretary Scott Bessent says American support is strengthening the yen and influencing market expectations.
The yen recently approached 152 per dollar after falling to nearly 164 in July.
The Bank of Japan is widely expected to raise its policy rate by 25 basis points this week.
Bessent’s intervention has encouraged yen gains, but the currency has already risen about 4% this month.
Analysts warn that foreign-exchange markets are too large for officials to control indefinitely and that fundamentals will ultimately matter.
- Who
- Treasury Secretary Scott Bessent, Bank of Japan Governor Kazuo Ueda, Finance Minister Satsuki Katayama, and the Japanese government are central to the story.
- What
- US support and Japanese policy are helping drive a yen rally, while the Bank of Japan is expected to raise interest rates by 25 basis points.
- Where
- Japan, the United States, and global foreign-exchange markets.
- When
- The yen strengthened in late July and during the current month; the Bank of Japan’s decision is expected this week, on Friday.
- Why
- Bessent and Japanese officials seek to influence yen expectations and address the currency’s earlier weakness, while Japan considers additional rate increases.
Support for a Stronger Yen
Caution About Further Gains
Effect of US involvement
Support for a Stronger Yen
Bessent’s intervention and public statements have changed the market narrative, discouraged yen bears, and encouraged expectations of further yen strength.
Caution About Further Gains
Officials cannot control the enormous foreign-exchange market indefinitely, and Bessent could share responsibility if the rally stalls.
Preferred exchange-rate level
Support for a Stronger Yen
A stronger yen could reverse the prolonged weakness that brought the currency close to 164 per dollar and support Japan’s financial position.
Caution About Further Gains
The Sanae Takaichi government is concerned about an excessively weak yen but reportedly considers a level around 150 acceptable; Bessent may favor further appreciation.
Bank of Japan policy
Support for a Stronger Yen
A 25-basis-point increase and a more hawkish message from Kazuo Ueda could reinforce the yen rally.
Caution About Further Gains
The Bank of Japan has limited room for rate increases before reaching an estimated neutral rate, and Japan’s economy may not require rates high enough to curb activity.
Key facts
- Recent yen level
- The yen recently neared 152 per dollar, its strongest level since February.
- July low
- The yen had fallen to almost 164 per dollar in July.
- Monthly gain
- The yen was up about 4% for the month discussed.
- Expected BOJ move
- The Bank of Japan is widely expected to raise rates by 25 basis points.
- Possible neutral rate
- Japan’s neutral rate is estimated in the article at about 1.5% to 1.75%.
- Foreign-exchange turnover
- The global foreign-exchange market has daily turnover of about $9.6 trillion.
- Other bond investors
- Norway’s sovereign wealth fund has announced plans to increase its allocation to Japanese bonds.
Quotes
Scott Bessent
US Treasury Secretary
“I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do”
livemint.com
“in 2011, Japan was written off as dead, now I think it’s one of the most vibrant economies in the world”
livemint.com
Sources
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