Guess who’s bossing Japan

If you’ve been feeling a little micromanaged at work lately, well congratulations on your career in diplomacy.

But also, spare a thought for Kazuo Ueda, Japan’s central bank chief now getting publicly coached by US Treasury Secretary, Scott ‘Scotty from Finance’ Bessent.

Scotty started out vague on Sunday, simply assuring journalists the Bank of Japan would “do the right thing”. What is that — recycle? Drink more water? Digital detox?

He then hinted “we probably reached the end of Abenomics, which was a reflationary program”. Oh…

Just in case Ueda still wasn’t picking up what Scotty was putting down, he winked, “I have information the market doesn’t have” 💅 and “it’s my belief that the Japanese government and the BOJ will do the things that will lead to a stronger yen”.

Or to put it another way? Scotty is pushing Ueda to raise rates. More precisely, he’s setting a market expectation that Ueda will raise rates — then if Ueda doesn’t, his credibility cracks, the yen keeps falling, and his next rescue just gets costlier.

So, why is Bessent all up in the BOJ’s business? 

First, Japan is the world’s yield anchor: decades of near-zero rates have made the yen a low-cost piggy bank for investors to borrow in Tokyo then chase returns elsewhere. If the yen gets too wild, those loans can blow up, and fund managers have to sell US assets to cover their yen tabs, harming US valuations. Scotty don’t like that.

Second, Japan is also America’s top landlord, holding $1.1T in US Treasuries. If Tokyo has to keep manually defending (buying) its currency instead of hiking rates (to attract more market buyers), that’d mean Japan dumping more US Treasuries to raise more cash to buy more yen, spiking US borrowing costs. Scotty don’t like that.

So okay… but why is Bessent all up in the BOJ’s business… now? 

First, he and Tokyo actually pulled off a rare joint FX intervention in July, buying up yen to boost it. This gave the currency a brief sugar hit but it then collapsed right back near 40-year lows, where import costs get brutal, and short-sellers smell blood.

So in practice, that means Scotty from Finance just burnt a pile of cash on an intervention that didn’t even work. And Scotty don’t like that. He’s not writing another check.

Second, Japanese bond markets are now doing Scotty’s pressuring for him, with the 10-year yield hitting 30-year highs of 3% earlier this week — ie, pricing in a BoJ hike.

And third, the BoJ’s next rates meeting is coming up on September 17-18, so that’s why Scotty is weighing in now — do the right thing Ueda, or markets will punish you.

But to be clear, Scotty isn’t playing central bank life-coach out of goodwill here.

He is — like anyone from Finance — completely self-interested: in pushing Ueda to hike, he’s hoping to avoid more market volatility, wasted cash, dumped US Treasuries, higher US borrowing costs, and a low yen pricing out US exports.

So will Ueda do the right thing by Scotty? We’ll find out on the 18th.

Sound even smarter:

• The last time we saw a joint US-Japan intervention (via the G7) was to weaken the yen after the Fukushima disaster of 2011.

• Bessent foreshadowed an initial $5-10B move to support the yen back in July, but it appears the US only put up $500M in the end. Classic jawboning.

• The yen jumped 0.9% on Wednesday amid all the impending-hike drama.