US Treasury Secretary Urges Japan to Outline Path to Higher Rates and Fiscal Health, NHK Reports

U.S. Treasury Secretary Scott Bessent has urged Japanese officials to demonstrate a clear path toward fiscal sustainability and higher interest rates, Japan's public broadcaster NHK reported Tuesday. The comments signal a U.S. focus on Japan's underlying economic policies as the yen continues to languish near multi-decade lows.

US Shifts Focus from Intervention to Policy

According to NHK, which cited a senior U.S. Treasury official, Bessent delivered the message in separate meetings with Bank of Japan Governor Kazuo Ueda and Japanese Finance Minister Satsuki Katayama. The discussions took place on the sidelines of the G20 finance ministers' meeting in Asheville, North Carolina.

The Treasury official stated that Bessent emphasized the importance of "clearly showing markets the path toward fiscal sustainability and interest-rate increases" as Japan's next policy step. This marks a notable pivot from prior discussions centered on direct currency intervention, such as the rare joint effort by the U.S. and Japan to support the yen in July.

Yen Under Pressure Amid Policy Divergence

The U.S. call for clarity comes as the Japanese yen remains under significant pressure, trading near the closely watched 160-per-dollar level. Despite the July intervention, the currency has weakened again, driven primarily by the wide interest rate differential between the U.S. and Japan's still-low rates.

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Investor concerns over Japan's expansionary fiscal stance and large public debt have also weighed on the currency. The rising yield on the benchmark 10-year Japanese government bond has intensified scrutiny of the country's debt position and the interplay between government spending and the Bank of Japan's monetary tightening efforts.

All Eyes on Bank of Japan's September Meeting

Market participants are now closely watching for the Bank of Japan's next move, with expectations growing for another interest rate hike. The central bank's next policy meeting is scheduled for September 17-18.

In a separate interview with CNBC on Monday, Bessent noted that he believed Japanese authorities would take action to strengthen the yen and that markets were already pricing in the possibility of a rate increase. Economists are increasingly forecasting further tightening, with some expecting the BOJ's policy rate to reach at least 1.5% by the end of March 2027.