With One Word from Bessent, Yen Slides Back Above 160 per Dollar (Comprehensive)

"Japanese Government and BOJ Will Take Action"
Hints at Possibility of a Rate Hike This Month

Despite the rare joint intervention in the foreign exchange market by the U.S. and Japanese governments, the yen-dollar exchange rate once again surpassed 160 yen per dollar. In response, U.S. Treasury Secretary Scott Bessent stated that the Japanese government and the Bank of Japan (BOJ) would "take measures that will lead to a stronger yen." Following Bessent's remarks, a buying spree for the yen quickly followed, pushing the yen-dollar rate back below 160 yen per dollar.

Scott Bessent, U.S. Secretary of the Treasury, spoke at the G20 Finance Ministers and Central Bank Governors Meeting held on the 31st of last month (local time) in Asheville, North Carolina, USA. Photo by Reuters Yonhap News

In a televised interview with U.S. economic outlet CNBC on the 31st of last month (local time), Secretary Bessent was asked about the effects of the joint currency market intervention by the U.S. and Japan. He replied, "I cannot interfere with the natural balance of the market," but added, "I have information that the market does not have, and I believe that the Japanese government and the BOJ will take measures that will lead to a stronger yen."

When asked whether these measures implied a rate hike by the BOJ, he responded, "I think the market has already priced that in." This lent further weight to the possibility of an early rate hike by the BOJ.

The market reacted instantly. The yen-dollar exchange rate, which had exceeded 160 yen per dollar last week, dropped to 159.68 yen per dollar immediately after the interview aired. Market participants now see a high probability that the BOJ will raise rates at its monetary policy meeting scheduled for the 17th and 18th of this month. The Financial Times (UK) reported, "The market currently sees the probability of a BOJ rate hike next month as being over 90%."

The yen is hovering around the 160 yen per dollar mark, which is seen as a 'psychological resistance level.' Although Japanese authorities injected 96.4 billion dollars at the end of July to defend the yen, Bloomberg News pointed out that the positive effect has now dissipated. During the previous intervention, the U.S. government also participated, marking the first joint yen-buying intervention by the U.S. and Japan since 1998.

According to Bloomberg News, the factors weighing on the yen are complex. Expectations that the U.S. Federal Reserve could raise its benchmark rate as early as September have led to higher yields on U.S. Treasuries and a stronger dollar, creating additional downward pressure on the low-yielding yen. The fact that hedge funds—in the wake of the official interventions—are once again increasing their short positions against the yen, after having scaled them back, is also contributing to the currency's weakness.

There is growing caution in the market regarding the possibility of further intervention by Japanese authorities. Linto Maruyama, chief strategist at SMBC Nikko Securities, stated, "161 yen is the first threshold to watch. After that, attention will focus on the 162.9 to 163.3 yen range, where the authorities last intervened." However, the Japanese government has repeatedly emphasized that it places greater importance on sharp and disorderly exchange rate movements than on any specific exchange rate level.

Many analysts continue to point out that currency market intervention alone is unlikely to reverse the overall trend of yen weakness. Japan's real interest rates are still deeply negative, and the BOJ faces limits on how rapidly it can raise rates beyond what the market expects. Moh Siong Sim, strategist at OCBC Bank in Singapore, commented, "The BOJ faces a dilemma in that it is difficult to raise rates to a level that would exceed market expectations by a wide margin. Other policy tools, such as measures to encourage overseas funds to be repatriated to Japan, will be needed to reverse the yen's depreciation trend."

Meanwhile, the Nikkei reported that Secretary Bessent is adjusting his schedule to hold talks with Japanese Finance Minister Satsuki Katayama and BOJ Governor Kazuo Ueda during the agenda of the current G20 Finance Ministers Meeting.

This content was produced with the assistance of AI translation services.