U.S. Treasury Secretary Bessent indicated that the Takaichi administration’s high-pressure economic policies could push up long-term interest rates and affect the U.S. Treasury market, and strongly called for a review of Japan’s monetary and fiscal policies.
Amid moves by the Japanese and U.S. fiscal authorities from late August to early September local time, Treasury Secretary Bessent repeatedly conveyed strong demands regarding Japan’s economic policies ahead of the BOJ Monetary Policy Meeting. At the G20 meeting of finance ministers and central bank governors held on 31 August–1 September, concerns were raised that rising long-term interest rates in Japan could spill over into U.S. Treasury yields. Bessent said he expected the BOJ to “do the right thing” at its next meeting and was also said to have conveyed the view that Japan should reject continued reflationary policies. Although Japan and the United States carried out an unusual coordinated yen-buying intervention at the end of July, he stressed that this alone would not be sufficient and that Japan’s monetary and fiscal policies themselves needed to be reviewed.
The second issue was the impact of yen depreciation on trade. If the yen continues to weaken, the dollar-denominated prices of Japanese products will fall, potentially changing competitive conditions for U.S. companies. The combination of developments in the foreign exchange market and the BOJ’s low-interest-rate policy has been presented as a factor prompting the U.S. side to seek policy changes in Japan. This view also includes the possibility that rising long-term interest rates in Japan could affect demand for U.S. government bonds, while the U.S. government is said to want to avoid higher interest rates amid fiscal deficits and inflation concerns.
The practical proposals on the fiscal front comprise 3 points: steadily advancing the normalization of BOJ monetary policy, restoring fiscal discipline over the medium to long term, and securing funding sources for tax cuts. The call to end reflationary policies entirely is said to be consistent with the current situation in which Japan’s economy faces supply constraints and higher import prices, and the view was expressed that priority should be given to growth strategies such as curbing inflation and improving productivity. The total size of next fiscal year’s budget is expected to exceed the record ¥143 trillion, and as additional fiscal spending and funding sources come under scrutiny, attention remains focused on government bond issuance and the BOJ’s purchases.