Yen Stability Assured If BOJ Stays Course, US Treasury’s Bessent Declares

Japan's currency rollercoaster might finally be slowing down—if central bankers can resist the temptation to veer off script.

The Monetary Tightrope Walk

US Treasury official Jay Bessent just dropped the ultimate vote of confidence in Tokyo's financial strategy. His message? Stay the course and watch the yen find its footing. No dramatic interventions needed, no emergency rate hikes—just disciplined execution of existing policies.

Central Bank Credibility Test

Market watchers are leaning forward in their chairs as the Bank of Japan faces its biggest credibility test since the lost decade. Currency speculators have been circling like sharks, but Bessent's comments suggest Washington sees Tokyo's playbook as fundamentally sound. The real question isn't whether the plan works—it's whether politicians will let technocrats see it through.

Because nothing says 'stable currency' like needing reassurance from another country's treasury department.

Bessent links yen’s future to the Bank of Japan’s steady policy

Bessent said the Bank of Japan was moving too slowly to fight inflation in August, but has now softened his tone, stating that the yen will naturally find a stable level on its own if the Bank of Japan continues to follow a “proper” or responsible policy path.

The BOJ has maintained its main interest rate at 0.5% since January, following the end of its ultra-easy monetary policy last year. The bank adhered to this policy for over a decade to help the economy recover from weak growth and low inflation. However, the situation has now changed because prices in Japan have been rising faster than before.

Most Japanese households are now struggling with higher living costs as inflation has remained above 2% for more than three years, but real wages have not kept up.

Governor Ueda has stated that he wants to understand how US tariffs, slower global trade, and changes in domestic spending impact Japan’s inflation and economy. He explained that the BOJ will proceed cautiously before raising interest rates again, as he believes a sudden MOVE could harm the fragile recovery that Japan has worked so hard to build.

Both Bessent and the governor say building confidence in the market requires patience, consistency, and clear communication. The US Treasury Secretary expressed his faith in Japan’s long-term economic management when he said that the yen WOULD “find its own level” if the BOJ follows the right path. 

Japan’s politics and markets make a rate hike less likely 

The BOJ can’t change interest rates at the moment because the state of politics in the country is unstable. The leadership of the ruling Liberal Democratic Party (LDP) has recently changed, and Sanae Takaichi is now preparing to become Japan’s next Prime Minister. Her victory caused some nervousness inside the government and among investors who prefer stability and clear direction.

The situation became even more complicated when the LDP’s longtime coalition partner, the Komeito Party, left the alliance.

Most government decisions, including those related to economic policy, are on hold because lawmakers will vote on the next prime minister next week. The Bank of Japan is likely to raise its rates due to this unstable situation.

Traders estimate about a 15% chance that the BOJ will increase interest rates compared to around 70% at the end of September. The Japanese yen currently trades at around 150.60 per dollar as of Thursday morning in Tokyo. This weakened yen will make imported goods more expensive for Japanese consumers and businesses.

Japan’s Finance Minister, Katsunobu Kato, said the government has noticed “rapid moves in a weak-yen direction,” and is ready to act if things get out of hand, but he did not explain what specific steps they might take.

A former executive director at the BOJ, Kazuo Momma, stated that a rate hike would become increasingly likely if the yen weakened to 155 per dollar or beyond. He explained that a weaker yen would raise the prices of goods even higher and further frustrate the citizens.

For now, the BOJ is waiting for the country’s political environment to stabilize before making its next significant move.

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