Scott Bessent, the U.S. Treasury Secretary, expressed support for the Bank of Japan's (BOJ) policy decisions following a meeting with BOJ Governor Kazuo Ueda, drawing attention to the possibility of an additional rate hike in June. As the yen weakens and Japanese long-term interest rates rise, analysts suggest that U.S. remarks may exert indirect pressure on the cautious Japanese government regarding rate increases.
The Nihon Keizai Shimbun reported that Ueda met with Bessent in Paris on May 19, marking a rare direct meeting between the BOJ governor and the U.S. Treasury Secretary. The discussions reportedly included financial policy, adding significance to the encounter. Ueda described the meeting as an opportunity that arose, without disclosing specific details of their conversation. He noted that he has known Bessent for a long time and has met him whenever possible.
In an interview with Reuters on the day of their meeting, Bessent stated, "I am confident that if given the necessary conditions, he will implement excellent monetary policy." The Nihon Keizai Shimbun interpreted this statement as backing the BOJ's independent decision-making regarding interest rate hikes, considering the political pressures from the cautious Takaichi administration.
After the meeting, Bessent posted on social media platform X, expressing that the fundamentals of the Japanese economy are solid and that excessive currency fluctuations are undesirable. The U.S. Treasury has previously indicated in its foreign exchange policy reports that ongoing rate hikes by the BOJ could help alleviate yen depreciation. This has led to speculation within the Japanese government that the U.S. may be indirectly urging the BOJ to raise rates again, according to the Nihon Keizai Shimbun. The Trump administration had pursued a weaker dollar, and an expanding yen depreciation could lead to a stronger dollar, potentially hindering that goal.
The market also sees a high likelihood of a BOJ rate hike in June. As of May 20, the probability of a rate increase at the BOJ's monetary policy meeting was reported to be 80%. Mari Iwashita, chief interest rate strategist at Nomura Securities, noted, "We can confirm that Bessent continues to support the BOJ's rate hike stance."
The yield on Japan's 10-year government bonds, a key indicator of long-term rates, reached 2.8% on May 18, marking its highest level in nearly 29 years. Concerns are growing in the market that the BOJ may fall behind the curve in responding to inflation and interest rate trends due to Japan's fiscal expansion and potential delays in rate hikes.
Within the BOJ, support for rate hikes is gaining momentum. At the previous monetary policy meeting in April, three out of nine policy board members opposed keeping rates unchanged. Kazuyuki Masu, a board member who supported the freeze, expressed a positive attitude toward early rate hikes in a speech on May 14. If he supports a rate increase, the pro-hike faction within the BOJ could approach a majority.
Bessent had previously visited Japan from May 11 to 13, meeting with Prime Minister Takaichi and Finance Minister Satsuki Katayama, but did not meet with Ueda at that time. The recent meeting in Paris has positioned the BOJ's June rate decision as a key variable in addressing yen depreciation.
* This article has been translated by AI.
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