Bessent encourages Japan to let central bank attack inflation

US Treasury Secretary Scott Bessent has called on Tokyo’s new government to provide the Bank of Japan (BoJ) with greater “policy space” to address rising inflation, a move he said previously helped push Japanese stocks to record highs.

The Treasury Secretary further shared an X post, pointing out that the government’s support for allowing the central bank to exercise this policy space is important for controlling inflation expectations and preventing large swings in exchange rates.

He made the remarks just before leaving Tokyo to join US President Donald Trump for talks in South Korea, coinciding with the BoJ’s two-day Monetary Policy Committee meeting on interest rates.

Bessent’s comments come at a critical juncture for Japan’s economy, with inflation above target, a weak yen, and uncertainty over the central bank’s next policy steps.

Trump recognizes Bessent’s strategic approach to the monetary and financial system

Reports indicate that while the BOJ is likely to maintain interest rates at 0.5%, Tokyo traders raised concerns about Bessent’s remarks regarding the central bank’s control of inflation. According to them, his remarks added pressure on the bank to raise borrowing costs and move towards making policy normal after many years of deflation.

For the US, reliable sources reported that the Federal Reserve is expected to reduce rates by another 25 basis points on Wednesday this week. Markets are also anticipating one more cut before the beginning of 2026. 

Meanwhile, analysts closely monitoring the yen’s progress acknowledged that, following Bessent’s X post, the yen, which had dropped drastically against the dollar earlier in October, regained some strength. 

This was after it remained steady at ¥152.05 against the dollar in late morning trading. At this time, yields on 10-year Japanese government bonds were also steady at 1.65%. On Wednesday, October 29, Japan’s Nikkei 225 index escalated by 2%, hitting a new peak.

On the other hand, Sanae Takaichi, Japan’s newly elected Prime Minister, who has always favored low interest rates, previously criticized the BoJ’s move to raise rates as a short-sighted approach.

Considering the advice Bessent gave to the new government in Tokyo, Trump mentioned that he is considering appointing Bessent, who has advocated for a more thorough examination of the Federal Reserve’s decisions, as its next chair.

This announcement occurred despite the Treasury Secretary having ruled himself out and being in search of a replacement for Jay Powell. 

Bessent’s remarks raise concern about influencing BoJ governor 

During an interview in August, Bessent mentioned that the Bank of Japan was “behind the curve” regarding its interest rate policy, as Japanese families are facing higher living costs. The Treasury Secretary made this comment in a rare, straightforward statement regarding the financial policies of another country.

The situation prompted several economists to express their belief that after three years of consistent inflation, the BoJ finally has enough data to justify a rate hike this week. This was after two policy committee members voted in favor of a rate hike, despite the bank’s decision to keep rates steady at its September meeting.

However, financial markets recently shared their prediction that BoJ governor Kazuo Ueda could wait until December or January before implementing any adjustments. 

Shoki Omori, Chief Desk Strategist at Mizuho, commented on the topic, stating that Bessent’s remarks could add more complexity to Ueda’s choices. 

“If investors believe that the BoJ only raised rates because of what Bessent said, they will stop paying attention to the BoJ and start focusing on Bessent’s comments instead. This is something Ueda would prefer to avoid,” noted Omori. 

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