U.S. Treasury Secretary Scott Bessent says the Japanese yen’s latest decline is not yet disorderly, even as the currency returns to a level closely watched for possible intervention and investors raise bets on another Bank of Japan interest-rate hike.
The Japanese yen is once again testing policymakers’ tolerance after sliding beyond the psychologically important ¥160-per-dollar level, but Washington is not yet signaling that another emergency response is imminent.
U.S. Treasury Secretary Scott Bessent said the yen’s latest moves appeared “pretty well contained,” drawing a sharp distinction between the current decline and the market disorder that prompted the United States and Japan to intervene jointly in the currency market at the end of July.
Bessent made the remarks in an interview with Reuters ahead of the Group of 20 finance ministers and central bank governors meeting in Asheville, North Carolina. Asked whether recent yen trading had become disorderly, Bessent said it had not.
That reassurance matters because the yen has once again fallen through ¥160 against the dollar, a level closely watched by foreign-exchange traders following last month’s extraordinary intervention.
Yen Returns to a Critical Level
Japan and the United States carried out a rare coordinated yen-buying operation on July 31 after a severe currency selloff raised concerns about financial-market stability.
The intervention initially sent the yen sharply higher, but much of that recovery has since disappeared.
The Japan Times reported that the yen moved from roughly ¥162.80 per dollar to around ¥155 following the intervention before gradually weakening again toward ¥160. By August 29, it had fallen through ¥160 once more.
The Wall Street Journal reported that Japan spent a record amount supporting the currency over the past month, yet the effort has so far had limited success in reversing the yen’s broader downward trend.
That does not automatically mean another intervention is coming.
For policymakers, the speed and disorderliness of currency movements can be just as important as the exchange-rate level itself. Bessent’s latest comments suggest Washington currently views the yen’s weakness as manageable rather than a destabilizing market event.
But traders are unlikely to ignore ¥160.
Why the Yen Is Weakening Again
The renewed pressure is being driven partly by expectations surrounding interest rates in both the United States and Japan.
Federal Reserve Chair Kevin Warsh recently delivered hawkish remarks on inflation, encouraging investors to increase bets that the Fed could raise interest rates again.
Those expectations lifted U.S. Treasury yields and strengthened the dollar, pushing the yen beyond ¥160 per dollar.
Reuters reported on August 31 that markets had raised the probability of a September Federal Reserve rate increase to about 57%, while the yield on the two-year U.S. Treasury climbed to a one-month high.
Higher U.S. interest rates generally make dollar-denominated assets more attractive and can place additional pressure on lower-yielding currencies such as the yen.
That puts even more attention on the Bank of Japan.
Pressure Builds for a September BOJ Rate Hike
Bessent stopped short of explicitly telling the Bank of Japan what to do.
Asked whether the BOJ should accelerate interest-rate increases to support the yen, the Treasury secretary said he was not going to instruct Japanese policymakers on monetary policy.
But he expressed confidence in BOJ Governor Kazuo Ueda and suggested Japan had moved beyond the ultra-loose economic-policy era associated with former Prime Minister Shinzo Abe.
Bessent is expected to meet Ueda during the G20 gathering.
Markets, meanwhile, are increasingly expecting action.
A Reuters poll published August 25 found economists expecting the BOJ to accelerate its tightening campaign and raise its key interest rate to 1.25% in September. The central bank had lifted the rate to 1% in June, its highest level in decades.
Bank of Japan Deputy Governor Ryozo Himino also kept the possibility of a September increase alive in comments last week, warning policymakers must pay greater attention to upside inflation risks.
At the time, overnight-index swaps were implying roughly an 85% chance of a September rate increase, according to Bloomberg reporting carried by The Japan Times.
The BOJ’s next major policy decision is scheduled for September 18.
A Weak Yen Creates a Bigger Inflation Problem
Japan’s currency dilemma goes beyond foreign-exchange trading.
A weaker yen makes imported goods more expensive. That is particularly significant for Japan because the country depends heavily on imported energy and food.
Persistently expensive imports can push inflation higher, squeeze household purchasing power and make the BOJ’s job more difficult.
The central bank must therefore balance the danger of raising rates too aggressively against the risk that prolonged yen weakness allows inflation to become more entrenched.
Those pressures have intensified as geopolitical tensions have also pushed global energy prices higher.
At the same time, Prime Minister Sanae Takaichi’s expansionary fiscal policies have added another complication.
Bessent argued that Japan is moving from the era of “Abenomics” toward what he described as “Takaichi-nomics,” characterized in part by deregulation and policies intended to encourage investment and shareholders.
Takaichi has also pursued significant government spending aimed at supporting households and investment.
Critics, however, argue that expansionary fiscal policy could work against the BOJ’s effort to restrain inflation.
Japan’s benchmark 10-year government bond yield recently climbed to around a three-decade high as investors became increasingly concerned about inflation, government spending and the country’s enormous public-debt burden.
Why Washington Is Watching Closely
The United States has reasons to care about the yen beyond Japan’s domestic economy.
Bessent has previously warned that a disorderly yen market could trigger the unwinding of large financial positions and spill into global markets.
Japan is also one of the world’s largest holders of U.S. government debt.
In a letter responding to questions about the July intervention, Bessent argued that severe yen instability could ultimately contribute to higher borrowing costs in the United States if market disruption spilled into Treasury securities.
That helps explain why Washington took the unusual step of joining Japan in the July currency operation.
What Happens Next
The market now faces an unusual contradiction.
The yen has returned to a level that normally intensifies speculation about intervention, yet the U.S. Treasury secretary is signaling that the latest moves remain orderly.
That means the next trigger may not simply be whether the yen reaches ¥160, ¥161 or even weaker levels.
What matters could be how quickly it gets there.
Investors will now watch the yen’s speed of decline, signals from Japanese finance officials, Bessent’s discussions with BOJ Governor Ueda, the September 17-18 BOJ meeting and upcoming U.S. economic data that could determine whether the Federal Reserve raises rates again.
For now, Washington appears comfortable watching rather than intervening.
But with the yen once again beyond ¥160 and much of July’s intervention-driven rebound already erased, markets may soon find out exactly where “contained” ends — and where another policy response begins.
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