U.S. Treasury Urges Japan to Allow BOJ Rate Hike as Yen Weakens

U.S. Treasury Secretary Scott Bessent has urged the Japanese government to grant the Bank of Japan (BOJ) greater freedom to raise interest rates, signaling growing U.S. concern over Japan’s prolonged low borrowing costs and the resulting weakness of the yen.

Following Bessent’s remarks, the U.S. dollar slipped 0.3% to 151.59 yen, as investors renewed expectations for a potential interest rate hike by the BOJ. His comments come just ahead of the central bank’s two-day policy meeting, where markets largely anticipate a decision to maintain current rates.

Bessent praised Japanese Finance Minister Satsuki Katayama for her understanding of the shift in Abenomics — Japan’s long-standing economic strategy — from a purely reflationary focus to a more balanced approach addressing both growth and inflation. “The government’s willingness to allow the Bank of Japan policy space will be key to anchoring inflation expectations and avoiding excess exchange rate volatility,” Bessent emphasized.

His latest remarks follow a similar warning issued Tuesday, where he called for a “sound monetary policy” in Japan to stabilize inflation expectations. Analysts believe Bessent’s stance adds complexity for Prime Minister Sanae Takaichi’s administration, known for favoring expansionary fiscal and monetary policies aimed at stimulating growth.

Market watchers suggest Washington may be subtly pursuing a weak-dollar strategy to bolster U.S. exports, which could indirectly pressure Tokyo to let the yen appreciate.

As global investors await the BOJ’s upcoming decision, Bessent’s comments underline a growing divergence between U.S. and Japanese monetary policies, raising speculation about future currency market volatility and policy coordination between the two economic powers.