Bessent says he has 'house' edge on yen

The remarks made on Monday by US Treasury Secretary Scott Bessent are notable.

At a Southern Methodist University event in Texas, Bessent said, “I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do, bet against me if you want.” He added, "Whenever people say, 'The Treasury Secretary is taking a risk'... it's my dream. I have asynmettic information."

These comments prompt many questions. The most immediate is about control at the Bank of Japan. Unlike the Fed's claimed independence, the BOJ has a nine-person board that theoretically makes decisions via votes, yet it has not convened.

Alternatively, Bessent might have insight into the GPIF, Japan's large government pension fund. The fund held an unusual meeting on August 21, sparking speculation of a shift towards more domestic bonds. Such a move would bring yen inflows and lower Japanese yields, reducing the appeal of holding the yen.

The most striking aspect is his ego. Many market participants have long suspected Bessent of influencing the oil market to lower crude prices, and so far that has worked fairly well.

Now he is entering foreign exchange and bond markets, challenging the market to oppose him. That is the riskiest game in finance, and it is ironic that someone who says he was behind the Soros trade that broke the Bank of England would believe state resources can beat the market.

Trying to play god is risky, and the market has humbled Bessent twice during his hedge fund career. He appears to believe that greater firepower would have secured victory.

Only time will reveal if he is correct, but I am not prepared to bet against him right now. I have consistently cautioned that buying USD/JPY at 160 was an error, and that advice is holding up. Currently, Bessent and Japanese authorities share a common goal: a weaker USD/JPY.