US Treasury Secretary Yellen: Confident that Japan will take measures to boost the yen, strengthening expectations for a rate hike in September

1. U.S. Treasury Secretary Besant stated on Monday during the G20 finance ministers’ meeting that he believes the Japanese government and central bank will adopt “measures capable of strengthening the yen,” suggesting a high probability of a Bank of Japan rate hike in September. He also noted that the market has now largely priced in expectations of a rate hike. Besant has previously called on the Bank of Japan to raise rates on multiple occasions, and this stance has become a key factor driving the market to fully price in a possible September hike.2. In an interview, Besant reiterated his belief that Bank of Japan Governor Kazuo Ueda will “make the right decision” to contain pressure on the yen’s depreciation. He revealed: “I possess information not available to the market.” This statement echoes the rare joint intervention by the Bank of Japan on July 31, showing coordinated positions between the U.S. and Japan on exchange rate policy.3. A senior official at the U.S. Department of the Treasury told NHK that Besant met separately with Bank of Japan Governor Kazuo Ueda and Finance Minister Satsuki Katayama during the meeting, urging Japan to further raise interest rates and clarify a path for fiscal sustainability. Previous sources indicated that the Bank of Japan may raise rates as early as the meeting on September 17-18 and is considering accelerating policy normalization thereafter.4. The yen closed at 159.73 against the U.S. dollar on Monday, remaining close to the 160 threshold that could trigger buying intervention. The persistent weakness of the yen continues to drive up import prices and overall inflation, partly due to the Bank of Japan’s slow pace of rate hikes resulting in a wide spread with U.S. rates. Although Besant stated that the recent movement of the yen “has not been disorderly,” suggesting no immediate further joint intervention with Japan, his belief that the yen has entered a “virtuous cycle” and his confidence in Kazuo Ueda’s decisions have further boosted mainstream market expectations for a rate hike in September.