During the recent G20 Finance Ministers and Central Bank Governors Meeting, U.S. Treasury Secretary Scott Bessent met with Bank of Japan Governor Kazuo Ueda. Bessent explicitly expressed strong support for Japan taking decisive monetary policy actions to address the ongoing weakness of the yen. In a post-meeting statement, the U.S. Department of the Treasury noted that Bessent urged the BOJ to anchor inflation expectations through sound monetary policy and prevent excessive volatility in the yen's exchange rate.

The depreciation of the yen has led to a surge in the prices of imported goods in Japan, thereby pushing up the overall domestic inflation rate. As the cost of living for households continues to rise, this has become an urgent challenge for Japanese policymakers. Bessent emphasized that the severely undervalued yen is exacerbating domestic inflationary pressures in Japan, making it crucial to formulate and communicate monetary policy effectively. Japanese Finance Minister Satsuki Katayama also met with Bessent during the meeting, and both sides agreed to continue coordinating and cooperating to ensure orderly movements in the yen's exchange rate.

Bessent's remarks have significantly boosted market expectations that the BOJ will raise borrowing costs at its mid-September policy meeting. At the end of July this year, the U.S. and Japan jointly intervened in the foreign exchange market to buy yen, attempting to halt the sell-off of the yen and Japanese government bonds. However, the intervention failed to provide lasting support for the yen. Bessent believes that the recent trend of the yen does not constitute disorderly fluctuations; he prefers to curb the yen's decline through rate hikes and expects the BOJ to take the right measures.

Domestic wholesale price inflation in Japan has heated up noticeably recently, with the weak yen driving up import costs as a major catalyst. Intensifying price pressures have prompted warnings from within the BOJ that inflation may exceed expectations. Following a series of hawkish signals from the central bank, the market is now close to fully pricing in the possibility of a rate hike in September.

If the BOJ acts as expected in September, it will be another adjustment following its move in June this year to raise the policy rate to 1%, the highest level in 31 years. Market analysts point out that choosing to raise rates next month could signal to the market that the BOJ is accelerating its tightening pace, and may even break the previous norm of raising rates twice a year, entering a more frequent rate hike cycle.