US Treasury Secretary Scott Bessent’s public views on Japan’s monetary policy have all but locked the central bank into an interest rate hike at its September meeting, raising questions about Washington’s influence over domestic policy.

Background

Bessent has been promoting the rare cooperation between Tokyo and Washington in the currency markets as a much-needed win for Japan’s economy. However, he believes that intervention needs to be followed up with rate hikes to combat inflation.

Kazuo Momma, a former BOJ executive, said that the joint intervention has given the BOJ a free hand to raise rates, but this comes with a catch. The fact that the United States joined in the intervention is seen as a significant development, and if the Japanese government were to block the BOJ from raising rates, it would be an act of betrayal to the United States.

Implications

The timing of the BOJ’s next rate hike will affect market perceptions on how quickly and by how much the central bank will push up borrowing costs in the future. A majority of analysts expect the BOJ to raise rates again by December and possibly as soon as October.

Hiking in September, rather than October, could fuel market bets that the BOJ will raise rates once every quarter, rather than the current speed of roughly twice a year. However, some analysts believe that the BOJ will wait until October to scrutinize the economic impact of past rate increases.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.