Bessent's remarks signal US intervention comes at a cost for Japan

Bessent is present at the G20 finance leaders' meeting in North Carolina but has already held separate talks with BOJ Governor Ueda and Japanese Finance Minister Suzuki on the fringes. He appears to have made it plain to them that Japan must shoulder its share of the burden by taking further action, following US assistance with market intervention in late July and early August.

As was noted at the time, the suggestion arose that the US-Japan joint intervention may have involved a silent understanding that the BOJ would also do its part.

Bessent is now openly signalling that expectation. He stated that he hopes Ueda and the BOJ will decide on monetary policy in a way that is appropriate. On the fiscal side, he also took a jab at the Japanese government, suggesting it should simply "sit back and enjoy the success of Abenomics and let that run" now that deflation is no longer a problem.

That is clearly a dig at Takaichi's expansionary fiscal policies, and one can be certain Bessent made that point even more bluntly to Suzuki.

This is not the first time the US Treasury has attempted to prod the BOJ into action. Even before the intervention was agreed, the semi-annual currency report had already highlighted the need for it.

Now that the intervention has taken place, it likely gives Bessent some leverage to press Japan into the kind of moves he wants. He is also attempting to steer traders and investor expectations accordingly:

"I have information that the market doesn't have. It's my belief that the Japanese government and that the BOJ will do the things that will lead to a stronger yen."

It is widely anticipated that the BOJ will raise interest rates in September next. Market pricing implies roughly 74% odds of a rate increase, and traders are betting on an aggressive path, with about 80 basis points of hikes priced in by June next year.

For a central bank that has historically been cautious, will the BOJ suddenly shift pace under pressure from the US? And will Takaichi abandon her fiscal stance and commit to reforms?

The first scenario appears more probable, but it would be challenging for Ueda and his colleagues to abruptly discard their deliberate and careful policy approach. So it will be worth watching how developments unfold after September.

As for Takaichi, she is unlikely to yield to the pressure. That was already clear when Japan's ministries and agencies submitted the largest initial budget request on record, totalling roughly ¥143 trillion.