U.S. Treasury Secretary Bessent has stepped up his call for the BOJ to raise interest rates and for the Takaichi administration to shift its fiscal policy away from reflation. Against the backdrop of remarks made after the G20 and the content of past FX reports, efforts continue to reposition the direction of Japan's fiscal and monetary policies in the eyes of the market.
U.S. Treasury Secretary Bessent has made clear his position that Japan should stop pursuing reflationary policies. He indicated that the combination of monetary policy normalization by the BOJ and fiscal stimulus could fuel yen depreciation and inflationary pressures, going further than previous calls that assumed the continuation of reflationary policies.
The U.S. Treasury's 2025 and 2026 FX reports expressed the view that the BOJ should continue tightening monetary policy and called for fiscal policy not to become excessively expansionary. Against this backdrop, the latest remarks can be seen as a more direct call for Japan to change its policy direction.
In fiscal and budget-related developments in September, initial budget requests for fiscal 2027 were reported to have swelled to ¥143 trillion, with rising debt-servicing costs expected to become a market focus. As the continuation of gasoline subsidies and the balance between expanded growth investment and fiscal discipline come under scrutiny, policymakers are being tested in managing the tension between expanded fiscal spending and monetary policy normalization.
Against this backdrop, the possibility that the developments could affect BOJ personnel decisions has been raised, while attention is also focused on Japan's future fiscal and monetary policy direction from the perspectives of the dollar-yen exchange rate and correcting yen depreciation.
In light of these developments, Bessent's statements and actions have reignited debate over BOJ rate hikes and the appropriate direction of fiscal policy, and could affect the future course of international policy toward Japan.