Bessent's Push for BoJ Independence Tests Central Bank Autonomy

U.S. Treasury Secretary Scott Bessent has called on Japan's new government to grant the Bank of Japan (BoJ) greater policy flexibility to combat inflation and stabilize exchange rates, marking a departure from his more dovish stance at home toward the Federal Reserve. In a social media post on October 29, Bessent emphasized that the government's support for the central bank's independence is critical to "anchoring inflation expectations and avoiding excess exchange rate volatility," a Bloomberg report said. His remarks, made ahead of the BoJ's policy meeting, fueled market speculation about a potential rate hike and triggered a brief rebound in the Japanese yen.

Japan's inflation has remained above the BoJ's 2% target for nearly three years, driven by global supply chain disruptions, energy costs, and a weaker yen. The central bank has kept its benchmark rate at 0.50% since March 2024, despite calls for tighter policy. Prime Minister Sanae Takaichi, a proponent of low rates, has yet to directly intervene in monetary policy discussions but has expressed concerns about inflation's impact on households, Bloomberg reported. Bessent's push for autonomy aligns with his broader argument that the BoJ has been "behind the curve" in addressing inflation, a stance he reiterated during a meeting with Japanese Finance Minister Satsuki Katayama, Reuters reported.

The yen initially strengthened to 151.54 per dollar after Bessent's comments, reversing earlier losses against the greenback. Traders priced in a 20% chance of an immediate rate hike by the BoJ, up from 10% the previous day, Bloomberg reported. While most economists still expect the BoJ to hold rates steady at its October 31 meeting, market expectations for a tightening cycle in early 2026 have intensified. "Bessent's remarks will probably make the BoJ less likely to act tomorrow because he would be seen as a key driver of the action," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, Bloomberg later reported.

The yen's performance has been closely tied to policy divergences between the U.S. and Japan. The Federal Reserve is widely expected to cut rates by 25 basis points on Wednesday, with further reductions anticipated in 2026, MarketScreener noted. Meanwhile, Japan's ultra-loose monetary policy has widened the yield differential between U.S. and Japanese bonds, historically pressuring the yen. However, the BoJ's gradual normalization of policy, including ending its negative interest rate in March 2024, has begun to narrow this gap, FXStreet reported.

Bessent's advocacy for BoJ independence contrasts with his public criticism of Fed Chair Jerome Powell for delaying rate cuts. He has argued that U.S. monetary policy should accelerate easing to offset inflationary pressures from Trump-era tariffs, Bloomberg reported. This duality highlights the complex interplay between domestic and international monetary strategies, particularly as Japan navigates a fragile economic recovery amid trade tensions and fiscal stimulus efforts.

Analysts caution that external pressures, like Bessent's comments, could complicate the BoJ's decision-making. Shoki Omori of Mizuho noted that if investors perceive rate hikes as a direct response to U.S. influence, they may lose faith in the BoJ's autonomy, undermining its credibility, Bloomberg reported. The central bank is also weighing the economic impact of Takaichi's fiscal stimulus plans, which prioritize growth over immediate inflation control.

With the yen trading near 152.00 against the dollar, markets remain divided on the timing of BoJ rate hikes. A decision to tighten in December or January would signal a significant shift in Japan's monetary trajectory, potentially altering global currency dynamics. For now, the BoJ's patience reflects a balancing act between inflation risks and the need to support a recovery in an economy still grappling with deflationary legacies, Reuters reported.