US Treasury Secretary Scott Bessent has pressed the Bank of Japan to strengthen its monetary policy response to persistent yen weakness, warning that unchecked volatility could worsen inflation and impact Japanese households and businesses
US Treasury Secretary Scott Bessent has called on the Bank of Japan (BOJ) to reinforce its approach to monetary policy, emphasizing the need to manage inflation expectations and limit excessive swings in the Japanese yen. The appeal came during a meeting with BOJ Governor Kazuo Ueda on the sidelines of the G20 finance ministers and central bank governors' gathering in Asheville, North Carolina, according to a statement from the US Treasury Department.
Bessent expressed support for Japan's efforts to address the yen's undervaluation, highlighting the impact of the currency's persistent weakness on domestic inflation. A weaker yen has made imports more expensive for Japanese consumers and businesses, contributing to rising prices across a range of goods and services. The Treasury Secretary underscored the importance of clear communication and credible policy action by the BOJ to anchor inflation expectations and avoid destabilizing currency movements.
Yen Volatility and Policy Implications
The Japanese yen has faced sustained downward pressure against the US dollar in recent years, with the USD/JPY exchange rate reaching multi-decade highs. As of June 2026, the yen remains near its weakest levels since the late 1990s, reflecting a combination of Japan's ultra-loose monetary policy and diverging interest rates between Japan and the United States. The BOJ's negative policy rate and ongoing asset purchases have contrasted sharply with the US Federal Reserve's higher rates, widening the yield gap and encouraging capital outflows from Japan.
Market participants are now watching for signs that the BOJ may shift its stance. Bessent's remarks have reinforced expectations that the central bank could consider raising its policy rate at its next scheduled meeting on September 17-18. Any move to tighten policy would mark a significant change after years of aggressive monetary easing, but the BOJ faces a delicate balance: tightening too quickly could threaten Japan's fragile economic recovery, while inaction risks further yen depreciation and imported inflation.
International Coordination and Recent Developments
The issue of yen volatility has prompted closer coordination between Japanese and US authorities. Earlier this year, both countries took the unusual step of jointly signaling their readiness to address disorderly currency moves, as detailed in a recent report on US-Japan efforts to stabilize the yen. While direct intervention in currency markets remains rare, verbal intervention and policy guidance have become key tools for managing expectations and limiting abrupt exchange-rate swings.
Japanese Finance Minister Satsuki Katayama and BOJ Governor Ueda both attended the two-day G20 meeting, where global inflation, monetary policy divergence, and exchange-rate volatility were central topics. The BOJ's next steps will be closely watched by international investors, businesses, and policymakers, given the yen's role as a major global currency and its influence on trade and financial flows across Asia and beyond.
Understanding the BOJ's Policy Dilemma
The Bank of Japan's longstanding commitment to ultra-loose monetary policy has aimed to combat deflation and support economic growth. However, the side effects of a weak yen-especially higher import costs and rising inflation-have become more pronounced as global energy and commodity prices fluctuate. The BOJ must weigh the risks of tightening policy too soon against the dangers of allowing inflation expectations to become unanchored. In this environment, clear communication and gradual, data-driven adjustments are critical to maintaining both price stability and currency confidence.
