Benson meets with the Governor of the Bank of Japan, sends a strong signal: US supports a stronger yen and emphasizes avoiding excessive exchange rate volatility

The U.S. Treasury Department has publicly disclosed the contents of the meeting between Bessant and Bank of Japan Governor Kazuo Ueda, sending a clear signal from Washington that it hopes Japan will use monetary policy and market actions to ease the weakness of the yen.

On Tuesday, September 1 (ET), the U.S. Treasury Department released the meeting minutes, revealing that during the meeting with Kazuo Ueda on Sunday, August 30, Treasury Secretary Bessant "strongly supported Japan taking decisive market and monetary policy measures to address the clear undervaluation of the yen rate" and pointed out that the weak yen is exacerbating domestic inflationary pressure in Japan.

Bessant also posted on social media that day, expressing his pleasure at meeting his "longtime friend" Kazuo Ueda during the G20 Finance Ministers and Central Bank Governors Meetings. The two sides discussed the U.S.-Japan alliance, shared macroeconomic and financial policy focuses, normalizing Japanese monetary policy, and the importance of stabilizing inflation expectations and avoiding excessive exchange rate volatility through sound policy-making and communication.

This position continues the policy signals that Bessant has been releasing recently. On August 31, in an interview with CNBC, Bessant stated that he believes the Japanese government and the Bank of Japan will take measures to help strengthen the yen. According to Japanese media NHK, a senior U.S. Treasury official also said Bessant called on Japan to raise rates further during his meeting with Ueda.

Why is the U.S. Side Emphasizing "Excessive Volatility" of the Yen Now?

From the content of the meeting disclosed by the U.S. Treasury Department, Washington's current concern is not just the yen exchange rate itself, but rather the linkage between the yen, inflation, and Japanese monetary policy.

The U.S. Treasury Department stated that Bessant emphasized that developing and communicating monetary policy in a prudent manner is crucial for anchoring inflation expectations and avoiding excessive exchange rate volatility.

The Treasury Department also noted that Bessant expressed his "strong support" for Japan's previous market and monetary policy measures taken in response to the apparent undervaluation of the yen, and specifically mentioned that yen weakness is adding to Japan's domestic inflationary pressure.

A depreciating yen drives up prices of imported goods and energy and transmits these higher import costs to domestic prices. Against the backdrop of inflation in Japan remaining above the Bank of Japan’s long-term target, continued yen weakness also increases the challenge for the Bank of Japan to maintain its loose policy stance.

Therefore, the main emphasis Bessant made this time is actually: Japan needs to stabilize inflation expectations through a more sound and clear policy path while also reducing excessive volatility in the yen exchange rate.

Bloomberg points out that Bessant has previously hinted several times that Japan needs to raise rates to support the yen. After this meeting with Ueda, the U.S. Treasury Department publicly released relevant information, which is tantamount to further signaling support for Japan to take action.

Bessant Has Repeatedly Hinted: Japan Needs to Hike Rates Further

Although the official meeting minutes released by the U.S. Treasury do not explicitly state a "requirement for Japan to hike rates," Bessant’s recent public statements have repeatedly linked yen strength to the normalization of Japanese monetary policy.

On August 31, Bessant told CNBC that he believes "the Japanese government and the Bank of Japan will take measures to help strengthen the yen."

When asked if this meant the BOJ might raise rates, Bessant said he thought the market "is already pricing this in."

Bessant also said he has "information the market doesn't have," so he believes the Japanese government and the Bank of Japan will ultimately take actions that are favorable for a stronger yen.

According to reports, a senior U.S. Treasury official also told Japanese media NHK on Monday that Bessant called for Japan to further raise interest rates during his August 30 meeting with Kazuo Ueda.

However, Reuters noted that the U.S. Treasury did not confirm this specific statement in the official meeting minutes. Thus, the more accurate understanding at this time is that Bessant is continuously and publicly urging the normalization of Japan's monetary policy, rather than the U.S. Treasury formally announcing that Japan must hike rates at any specific meeting.

Rare Joint Intervention at End of July: Why Hasn't the Yen Shaken off Its Weakness?

Bessant’s meeting with Kazuo Ueda this time also comes with an important backdrop: the U.S. and Japan carried out a rare joint foreign exchange intervention at the end of July.

On July 31, the U.S. and Japanese governments jointly bought yen to prop up its exchange rate. This was a rare joint U.S.-Japan move, with one purpose being to prevent excessive depreciation of the yen and the resulting financial market volatility.

However, the joint intervention did not completely reverse the yen's weakness.

On August 31, Bessant also stated that the U.S. cannot change the "natural equilibrium" of exchange rates, but that policy actions can send signals to the market. He also said he believes the Japanese government will take measures to strengthen the yen.

This also explains why the market is paying close attention to Bessant's meeting with Ueda this time.

Compared to directly entering the foreign exchange market and buying yen at the end of July, Bessant now places greater emphasis on Japan's own policy adjustment—namely, normalizing monetary policy, clearer policy communication, and stabilizing inflation expectations to improve the yen’s performance from a fundamentals perspective.

September Meeting Approaches: Rate Hike Odds Rise to Nearly 100%

With Bessant continually sending signals, the Bank of Japan’s policy choices at its September meeting have become a market focus.

Bloomberg, citing overnight index swap data, reported that as of September 1, the market-implied probability of a rate hike at the Bank of Japan's September 18 meeting has reached about 99%, more than double a month ago.

The next policy meeting of the Bank of Japan will be held on September 17-18.

One reason for the rising market bets is that domestic inflation in Japan remains above target, and the weak yen is further pushing up import costs. In this scenario, the policy pressure facing the BOJ is shifting from "whether to continue normalizing" to "how quickly to normalize."

For the United States, Japanese monetary policy also has broader significance for global financial markets.

If the BOJ continues its relatively accommodative policy while the yen stays weak, domestic inflation in Japan may rise further. Conversely, if the BOJ accelerates rate hikes, it could boost the yen, and impact Japanese government bond yields and global capital allocation.

Therefore, the real focus of Bessant’s meeting with Ueda is not just whether the U.S. "supports a stronger yen," but that the U.S. Treasury has now publicly placed the yen's exchange rate, inflation, and Japan's monetary policy normalization into the same policy framework for discussion.

After the rare joint U.S.-Japan market intervention at the end of July, Washington is now sending even clearer signals supporting Japan’s efforts to stabilize the yen through monetary and market actions. With the BOJ’s September meeting approaching, how Kazuo Ueda will next balance inflation, exchange rates, and economic growth has become the market’s central concern.