Bessent Says BOJ Is Falling Behind the Curve, Expects Hike

Scott Bessent Photographer: Michael Nagle/Bloomberg

(Bloomberg) -- US Treasury Secretary Scott Bessent said the Bank of Japan is falling behind the curve in addressing inflation, in a rare comment admonishing policy decisions by a foreign central bank.

“They’re behind the curve,” Bessent told Bloomberg TV on Wednesday, noting that that was his opinion, and that he discussed inflation in Japan with BOJ Governor Kazuo Ueda. “So they’re going to be hiking and they need to get their inflation problem under control,” he added.

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Bessent’s comments come as the BOJ continues to have one of the lowest policy rates among major economies, while the nation’s key price gauge has remained at or above the bank’s 2% target for more than three years. After the BOJ’s decision to keep rates on hold last month, Ueda delivered a largely dovish message and avoided committing to a timeline for the next hike.WATCH: US Treasury Secretary Scott Bessent speaks on Bloomberg TV Source: Bloomberg

Following the Treasury Secretary’s comments, the yen gained against the dollar Thursday in Tokyo, while Japanese 10-year yields ticked up.

“Bessent may be trying to weaken the dollar through his comments on US and Japanese monetary policy,” said Hideo Kumano, executive economist at Dai-Ichi Life Research Institute and a former BOJ official. By commenting on another country’s policy, “he’s breaking the rules, and it’s possible that this actually makes it more difficult for the BOJ to take action.”

A BOJ spokesperson said Thursday that Bessent and Ueda regularly exchange views at international conferences, but they can’t comment on the content or timing of these exchanges.

In the latest Bloomberg survey of economists watching the BOJ, around 42% of respondents said they expected an increase in borrowing costs in October, with a third expecting a move in January. The BOJ is broadly expected to stand pat when it next sets policy on Sept. 19.

“The market had been a bit uncertain whether the BOJ will hike rates this year, but with pressure like this from the US, they’ll have to hike,” said Marito Ueda, general manager of the market research department at SBI Liquidity Market. “I think opinions will start to emerge that the BOJ will hike in December at the latest, and more people may think October.”

Bessent has in the past spoken approvingly of BOJ rate hikes, characterizing such moves as consistent with economic fundamentals. As a result of stronger domestic data “the Bank of Japan is raising rates, so all that’s natural,” he said in April.

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“BOJ policy tightening should continue to proceed in response to domestic economic fundamentals including growth and inflation, supporting a normalization of the yen’s weakness against the dollar,” the US Treasury said in a statement in June.

US President Donald Trump has in the past criticized Japan for its currency policy, claiming Tokyo was seeking an unfair advantage by weakening its currency. Prime Minister Shigeru Ishiba and others have denied those accusations.

“If there is a rate hike by the BOJ right after Bessent’s comment, and if the market narrative is tilted towards political pressure, I’ll be quite worried,” said Anna Wu, a cross-asset investment strategist at VanEck in Sydney. Such a move would show “how the US can put pressure on one of the most advanced economies in Asia.”

In its latest quarterly economic outlook, the central bank raised its median inflation forecast for the current fiscal year to 2.7% from 2.2%, citing persistent increases in food prices. Projections for fiscal years 2026 and 2027 were also revised upward, suggesting the BOJ is gradually approaching its goal of achieving stable inflation.

Data due next week are expected to show Japan’s overall inflation gauge registered 3% growth in July.

Bessent also said that US bond yields have been affected by trends abroad, including in Japan and Germany. Yields on Japan’s super-long bonds have surged to the highest level in decades in recent months, with various auctions showing acutely weak demand.

“This is a global phenomenon,” said Bessent, although he noted that the US 10-year yield is one of the few that are down this year. “That tells me that there’s credibility from Treasury, credibility from the Fed that the inflation expectations are well anchored, but there is definitely ‘leakage.”’

--With assistance from Sumio Ito, Mia Glass, Brett Miller and Alice French.

(Updates with additional analyst comments, context.)

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