Bessent Urges Japan on Fiscal Discipline, BOJ Rate Hikes

U.S. Treasury Secretary Scott Bessent has urged Japanese policymakers to outline a credible path toward fiscal sustainability and higher interest rates as pressure on the yen and government bond markets intensifies, according to a Tuesday report from NHK.

Bessent reportedly met separately with Bank of Japan Governor Kazuo Ueda and Japanese Finance Minister Satsuki Katayama on the sidelines of the G20 finance ministers and central bank governors’ meeting in Asheville, North Carolina.

Citing a senior U.S. Treasury official, NHK said Bessent emphasized that Japan should clearly communicate to financial markets how it plans to improve fiscal sustainability while moving toward further interest-rate increases.

The remarks come as the Japanese yen trades near the closely watched 160-per-dollar level. USD/JPY was around 159.89, while market expectations for another BOJ rate hike in September have strengthened.

Bessent also told CNBC on Monday that he expected the Japanese government and the BOJ to take measures that would ultimately support a stronger yen. He noted that investors were already pricing in the possibility that those measures could include higher interest rates.

His comments suggest greater U.S. emphasis on monetary and fiscal policy rather than relying primarily on direct intervention in foreign-exchange markets.

Japan and the United States conducted a rare coordinated currency intervention in July in an effort to strengthen the yen. However, the Japanese currency subsequently weakened again toward 160 against the dollar.

The yen’s weakness has been driven partly by the persistent interest-rate gap between Japan and the United States. Concerns about Japan’s expansionary fiscal policies and elevated government debt have also increased investor scrutiny.

Meanwhile, Japan’s benchmark 10-year government bond yield has climbed sharply, adding pressure on policymakers to balance fiscal spending with the BOJ’s monetary tightening campaign.

The Bank of Japan will hold its next monetary policy meeting on September 17-18. Economists are increasingly anticipating another rate increase, with the BOJ policy rate expected to reach at least 1.5% by the end of March 2027.