Scott Vessent, the U.S. Treasury Secretary, has publicly called on Japan to halt its 'reflation policy,' which combines fiscal expansion with monetary easing. Previously, he had only hinted at expectations for the Bank of Japan (BOJ) to raise interest rates in response to a stronger yen through media interviews. However, he has now demanded a change in the core economic policies of the Takaiichi government. The response from Japan to this public pressure from the U.S. is being closely watched.
According to the Yomiuri Shimbun, Vessent made his remarks on September 1 during a press conference following the G20 finance ministers and central bank governors meeting in Asheville, North Carolina. He specifically called for Japan to 'end the reflation policy,' effectively urging the Takaiichi government to revise its active fiscal stance and the BOJ to raise interest rates to correct the yen's weakness.
To support his argument, Vessent referenced Abenomics, the economic policy initiated by former Prime Minister Shinzo Abe. He described Abenomics as a successful strategy that led Japan out of deflation, asserting that if inflation had reached 2%, the reflation policy had already achieved its goals. He emphasized that it is now time to consider the outcomes of that success, stating, 'Now is the time for Takaiichinomics,' urging a policy shift to align with the changed economic circumstances. Vessent referred to Prime Minister Takaiichi's economic policy, commonly known as 'Sanaenomics,' as 'Takaiichinomics.'
This is not the first time Vessent has expressed such views. The New York Times reported that prior to this public criticism, he had dined for over two hours with Finance Minister Satsuki Katayama at a high-end restaurant in Tokyo on May 11, where he voiced dissatisfaction with the Takaiichi government's economic policies. He reportedly questioned the combination of pushing for fiscal expansion while demanding the BOJ maintain low interest rates, asking, 'Why is independence not granted to the BOJ?'
The Yomiuri Shimbun noted that Vessent's shift from private dissatisfaction to public pressure reflects growing concerns about Japan's fiscal policy and its side effects. The U.S. government is also wary of the potential spillover effects of rising long-term interest rates in Japan on U.S. financial markets. The yield on U.S. 10-year Treasury bonds has risen to 4.8%, the highest level since January 2025. With the midterm elections approaching in November, the Trump administration is particularly concerned that rising long-term rates could increase mortgage rates, burdening voters.
In contrast, the Japanese government has provided a different explanation regarding Vessent's comments. According to the Nihon Keizai Shimbun (Nikkei), Finance Minister Katayama stated at a press conference on September 1 that there had been 'surprisingly little' concern expressed by other countries, including the U.S., regarding Japan's fiscal policy. He cited that Japan has the smallest ratio of annual fiscal deficit to GDP among the G7 nations. He claimed that the Takaiichi government has garnered support from participants, including Vessent, by explaining its commitment to balancing economic growth with fiscal sustainability. While the U.S. has called for a policy shift, Japan has portrayed that it has received understanding for its policy direction from the U.S.
BOJ Governor Ueda also drew a line regarding the U.S. demands. At a press conference on September 1, when asked if there was a need to respond more strongly to currency movements, he replied, 'I do not think there has been such a change.' However, according to the Asahi Shimbun, when asked about the possibility of raising rates at the monetary policy meeting on September 17-18, Ueda stated, 'I want to discuss it thoroughly at every meeting, including the next one,' leaving the door open for a rate hike. The Nikkei reported that the market's expectation for a September rate increase stood at 97% as of the afternoon of September 2.
As the differences in perception between the U.S. and Japan become evident, the pressure from the U.S. may not end with this press conference. The Yomiuri Shimbun speculated that depending on future currency and bond market trends, Vessent may continue to call for a policy shift from Japan ahead of the next G20 meeting in October. However, some analysts suggest that rather than a significant immediate change in policy implementation, there may be a shift in the way Japan explains its policies externally. Toru Suehiro, chief economist at Daiwa Securities, noted that the Takaiichi government might explain that it has already moved beyond the reflation policy stage, while gradually downplaying the active fiscal stance and placing greater emphasis on market stability and fiscal discipline.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.