Scott Bessent has been on a public campaign in recent days, using posts, interviews and meetings to urge the BOJ to "do the right thing" and press Tokyo to end its reflation playbook. At a G20 gathering earlier this week in North Carolina, he and Governor Kazuo Ueda, 74, met to discuss "the importance of sound policy formulation to anchor inflation expectations and avoid excess currency volatility." Afterward, Ueda said the board will weigh policy with upside risks to prices front of mind, a hint that September is live.
Inside the BOJ, the most hawkish board member, Hajime Takata, upped the ante by floating a larger-than-usual move and even back-to-back hikes. With the benchmark sitting at 1%, a 25 basis point increase would quicken the current tightening tempo.
Futures and swaps show investors have fully penciled in a quarter-point rise for Sept. 17-18. With pricing near 100%, skipping a move this month would likely push the yen down and could prompt a forceful reaction by Bessent, who broke with precedent by joining Japan to buy yen on July 31. That initial coordinated action since 1998 drove the currency to around 155 per dollar from about 164, which had been the weakest since 1986. By Wednesday in New York, the yen was trading near 158.72 as traders watched for more intervention.
Meanwhile, a recent selloff has pushed Japanese government bond yields to mid-1990s highs, with the 10-year hitting 3% on Tuesday, a milestone last seen in 1996. By Wednesday, US 10-year yields were closing in on 4.82%, a peak last experienced ahead of Bessent taking office.
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Bessent began pushing for BOJ tightening last year over worries that volatility in Japan's bond market could spill into the US. He also wants to slow the yen's decline, which raises the chance Tokyo sells down its Treasuries. "Bessent is urging the BOJ to raise rates because he believes this will help curb the rise in global bond yields - an outcome that would also benefit the US," said Nobuyasu Atago of Rakuten Securities Economic Research Institute.
How far BOJ tightening can pull down longer dated yields is unclear. Budget deficits are the looming story on both sides of the Pacific, yet the Takaichi government and the Trump administration have not presented a credible blueprint to address them. "The current pace of the rise in long-term interest rates isn't really the BOJ's fault," said JPMorgan's Ayako Fujita. "What's essentially needed to slow down both the weak yen and the rise in long-term interest rates is a credible fiscal message from the government."
Ueda has stressed careful messaging after a July 2024 hike surprised a portion of the market and helped fuel global volatility. That move landed when overnight swaps put the odds around 60%. Today, the market is far more decisive. "The BOJ needs to hike and deliver a more forceful message lest they undo all the work done so far with respect to the yen," said James Athey of Marlborough Investment Management Ltd. "We believe the BOJ made a critical error in not hiking at the July meeting, after the stage had been set by the intervention and the political rhetoric."
There is a political wrinkle too. Bessent's very public push likely makes it tougher for Prime Minister Sanae Takaichi to lean on the BOJ to slow down while she aims to run the economy hot.
