Japan and the U.S. confirm close cooperation on exchange rates, with the market closely watching whether Bessent will prompt the Bank of Japan to raise interest rates.

Caixin Finance App News — On Tuesday, May 12, Japanese Finance Minister Mayumi Katayama met with U.S. Treasury Secretary Scott Bessent in Tokyo and told reporters that Japan and the U.S. reaffirmed close cooperation in handling exchange rate fluctuations (including foreign exchange interventions). The two sides discussed market dynamics and confirmed that Japan is responding to exchange rate fluctuations based on a joint statement signed with the U.S. in September last year, which allows for foreign exchange interventions to address excessive market volatility. Recently, Japan has been suspected of spending nearly 10 trillion yen (about $63.5 billion) to buy yen to support its currency, and the market is watching whether Bessent’s comments will provide additional support for the yen.

Detailed Content

1. Meeting Results: Confirmed Close Coordination

Japanese Finance Minister Mayumi Katayama told reporters after meeting with U.S. Treasury Secretary Scott Bessent in Tokyo on Tuesday that Japan and the U.S. reaffirmed close cooperation in handling exchange rate fluctuations (including foreign exchange interventions).

Katayama stated that both sides discussed market dynamics and confirmed that Japan is responding to exchange rate fluctuations based on a joint statement signed with the U.S. in September last year, which permits foreign exchange interventions to counteract excessive market volatility.

2. Core Statement: “Excellent Coordination”

At the press conference, Katayama said: “We unanimously agree that coordination between the two sides has been extremely good regarding recent market fluctuations, including the exchange rate.”

When asked whether Bessent made any comments on Japan’s recent suspected intervention to support the yen, Katayama responded: “Given the current situation, we once again strongly reaffirm the need to continue close coordination on market fluctuations.”

3. What “Close Coordination” Means

When asked whether “close coordination” means the U.S. can proactively respond to a sharp decline in the yen, Katayama said: “We discussed deepening coordination across various fields.”

When asked whether the meeting discussed Japan’s monetary policy, Katayama declined to comment.

4. Background: Japan Suspected of Large-Scale Market Intervention

Japan has recently been suspected of spending nearly 10 trillion yen (about $63.5 billion) to buy yen to support its weakening currency. The yen’s depreciation has negatively impacted the Japanese economy by raising import costs.

Japanese policymakers hope that Bessent’s recognition of their intervention actions can lend additional effectiveness to their measures and help slow the yen’s decline.

5. Market Focus: Bessent May Call for Accelerating Rate Hikes

Some analysts also speculate that Bessent might once again call on the Bank of Japan to accelerate rate hikes as a way to support the yen.

A summary of opinions from last month’s meeting shows that, influenced by soaring oil prices triggered by the war, some BOJ policymakers argued in the April meeting that rate hikes might be necessary soon, with one member mentioning the possibility of action in June.

6. Next Steps

Bessent’s three-day visit to Tokyo will continue until Wednesday, and he is expected to meet with Japanese Prime Minister Sanae Sato.

During the Tokyo meeting, Japan and the U.S. confirmed they will maintain close coordination on exchange rate fluctuations (including foreign exchange interventions). Japan has recently been suspected of spending about $63.5 billion to intervene in the currency market to support the yen, and policymakers are hoping Bessent’s comments can lend extra strength to their interventions. The market is also watching whether Bessent will again call on the BOJ to accelerate rate hikes. The degree of coordination on exchange rate policy between Japan and the U.S., as well as the BOJ’s monetary policy path, will continue to be key variables influencing the yen’s movement.

Institutional Views on the BOJ’s Rate Hike Path

Institutions generally believe that persistent imported inflation is the fundamental reason forcing the BOJ to shift. Due to high energy prices caused by conflicts in the Middle East, the BOJ significantly raised its inflation forecast in April.

S&P Global pointed out that Japan’s inflation dynamics are normalizing, with core inflation remaining above 2%, and companies and workers more easily passing on price increases and demanding higher wages, providing a basis for rate hikes.

Regarding the terminal point of rate hikes, most institutions believe rates will return to a “neutral” level.

S&P Global forecasts that, assuming inflation stabilizes at 2%, the BOJ’s policy rate will gradually rise to around 1.5% by 2028, consistent with the BOJ’s estimated neutral rate range of 1.1% to 2.5%. This means there is still considerable room for upward adjustment from the current 0.75%.

As of 13:17 Beijing time on May 12, USD/JPY is quoted at 157.64/65.

(Editor: Wang Zhiqiang HF013)

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