Bessent Moves to Correct Yen Weakness, Dollar-Yen Plunges from 163 to the 152 Range

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US Treasury Secretary Bessent made concrete demands on the government and the Bank of Japan, calling for accelerated rate hikes, a shift away from reflationary policy, and a halt to the yen's slide, and the dollar-yen rate strengthened sharply from its recent peak near 163 yen all the way to the 152-153 range. In a speech at a Texas university on the 8th, Secretary Bessent told yen-bearish speculators, "Bet on a weaker yen. I'm the bookmaker," signaling his intention to seize the initiative in the market and drive the yen higher and the dollar lower, throwing down a challenge to speculators. If Japan's long-term interest rates exceed 3%, institutional investors will sell US Treasuries and switch into Japanese government bonds, driving up US long-term rates and interest payment costs, so the Treasury Secretary appears to be trying to slow or stop Japan's rapid rate rises and the yen's depreciation. Some point to the possibility of a "mini Plaza Accord" that pushes the exchange rate into the 140-yen and 130-yen ranges, with the FOMC on September 15 and 16 and the Bank of Japan's monetary policy meeting on September 17 and 18 in focus. The Bank of Japan will likely raise rates by 0.25%, and if the Federal Reserve does not raise rates, the narrowing interest rate differential between Japan and the US will push the yen even higher. For now, the battle continues around the 152 level, which represents the halfway retracement of the yen's decline from 139.89 yen on April 22 last year to 163.95 yen on July 24 this year.

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