US Treasury Secretary Criticizes BOJ's Slow Rate Hikes, Sends Yen Higher

US Treasury Secretary Scott Bessent criticized Japan's Bank of Japan for its cautious approach to raising interest rates, saying it's acting too slowly to curb inflation. The yen gained against the dollar, and Japanese 10-year yields ticked up, as markets bet the BOJ may be pressured to raise rates. Some economists warn that Bessent's comments may complicate matters for the BOJ.

US Treasury Secretary Scott Bessent has criticized the Bank of Japan (BOJ) for its cautious approach to raising interest rates, stating that the central bank is falling behind in addressing inflation. Bessent's remarks, made during an interview with Bloomberg TV on Wednesday, have sparked market reactions, with the yen gaining against the dollar and Japanese 10-year yields ticking up [1].

Bessent's comments come as the BOJ maintains one of the lowest policy rates among major economies. The nation's key price gauge has remained at or above the bank's 2% target for more than three years. Following the BOJ's decision to keep rates on hold last month, BOJ Governor Kazuo Ueda delivered a largely dovish message, avoiding a commitment to a timeline for the next hike [1].

The Treasury Secretary's criticism may complicate matters for the BOJ. Hideo Kumano, executive economist at Dai-Ichi Life Research Institute and a former BOJ official, suggested that Bessent's comments could make it more difficult for the BOJ to take action. "He's breaking the rules, and it's possible that this actually makes it more difficult for the BOJ to take action," Kumano said [1].

Economists are divided on the BOJ's next move. Around 42% of respondents in the latest Bloomberg survey of economists watching the BOJ expected an increase in borrowing costs in October, with a third expecting a move in January. The BOJ is broadly expected to stand pat when it next sets policy on September 19 [1].

Bessent's criticism follows a pattern of US pressure on the BOJ to raise rates. In June, the US Treasury called for the BOJ to focus on growth, inflation, and the normalization of the yen's weakness against the dollar. US President Donald Trump has also criticized Japan for its currency policy, claiming Tokyo was seeking an unfair advantage by weakening its currency [1].

The BOJ's latest quarterly economic outlook raised its median inflation forecast for the current fiscal year to 2.7% from 2.2%, citing persistent increases in food prices. Projections for fiscal years 2026 and 2027 were also revised upward, suggesting the BOJ is gradually approaching its goal of achieving stable inflation [1].

Data due next week are expected to show Japan's overall inflation gauge registered 3% growth in July. Bessent also noted that US bond yields have been affected by trends abroad, including in Japan and Germany [1].

The yen's strengthening against the dollar and bitcoin, following Bessent's comments, underscores the market's expectation of a rate hike by the BOJ. The dollar-yen pair (USD/JPY) slipped for the third straight day, hitting a three-week low of 146.21 [2].

References:
[1] https://finance.yahoo.com/news/bessent-says-boj-falling-behind-033801111.html
[2] https://blockzeit.com/treasury-sec-bessent-calls-for-150-to-170-bp-interest-rate-cut/