The Japanese yen slipped back past the 160-per-dollar threshold on Friday, extending its retreat from the sharp rebound triggered by the rare joint intervention with the United States on July 31. While that coordinated action had briefly lifted the currency from around 163 to near 155, those gains have been steadily eroded, with the depreciation accelerating once more.
US Treasury Secretary Scott Bessent said in an interview on Sunday that the yen's moves were "fairly well contained" and not "disorderly," effectively endorsing the market's orderly functioning rather than the yen's relative weakness. This suggests that the 160 level is not an automatic trigger for intervention, with the policy response function instead placing greater weight on the speed of depreciation, one-sided speculative positioning, and potential contagion risks to Japanese government bonds and global financial markets.
Where the Yen's True Defense Line Now Lies
The near-term urgency for another US-Japan joint intervention has thus diminished, with the real defense line for the yen shifting to the Bank of Japan's policy meeting on September 17-18 and the subsequent pace of rate hikes. In other words, as near-term intervention expectations cool, the September BOJ meeting and the question of whether the central bank will shift to quarterly rate increases will dominate the yen's repricing.
Wall Street's major financial institutions share a consensus view that "intervention only buys time; interest rate differentials change the trend." A sustained yen appreciation would require the BOJ to accelerate policy normalization, the Federal Reserve to cut rates or US Treasury yields to decline, or Japanese capital to repatriate into domestic assets. However, there is no consensus on specific exchange rate targets: Bank of America expects dollar-yen to fall to 149 by year-end, Citigroup forecasts 155, Morgan Stanley sees current fair value in the 165-167 range before gradually strengthening to 155 as the US rate environment shifts, Goldman Sachs has a 12-month target of 165, and JPMorgan projects 164 for the fourth quarter.
Bessent's Assessment Reverses Course from a Month Ago
Bessent's Sunday remarks that the yen's recent moves have been "fairly well contained" indicate that the latest decline is not being viewed as the kind of disorderly action that prompted the rare coordinated US-Japan intervention last month. The yen's fall below 160 on Friday was widely seen by investors as a level that would raise the probability of intervention, keeping markets on high alert for another joint effort to shore up the currency.
In the same interview, when asked whether the BOJ should consider consecutive rate hikes to curb the yen's decline, Bessent said he expects BOJ Governor Kazuo Ueda, with the backing of Prime Minister Shigeru Ishiba, to "do the right thing" on monetary policy. "I'm not going to tell them what to do," Bessent said when pressed on whether the BOJ should raise rates more aggressively. "What I will say is, I do think that we're probably at the end of Abenomics, a policy program designed to reflate the Japanese economy."
Abenomics, launched in 2013 under the late Prime Minister Shinzo Abe, aimed to pull Japan out of prolonged deflation through a combination of massive monetary stimulus centered on zero or negative interest rates, substantial fiscal spending, and measures to boost Japan's growth potential. Bessent also noted he plans to meet with Ueda during a two-day gathering of Group of 20 finance officials that begins Monday in Asheville, North Carolina.
From "Abenomics" to "Ishibanomics": September's BOJ Meeting Takes Center Stage
"I've known him for 15 years. He's an outstanding economist. I think people underestimate how good he is in markets," Bessent said of Ueda. When asked directly whether the yen is still experiencing disorderly moves, he replied: "Oh, no. I think it's fairly well contained." The July 31 joint intervention, which involved Japan and the US buying yen together, demonstrated both nations' resolve to halt the selloff in the yen and Japanese government bonds and prevent spillover risks to global markets.
Bessent's calm assessment of the yen now contrasts sharply with his remarks a month ago, when he confirmed the Washington-Tokyo joint intervention and described it as a response to "disorderly" exchange rate movements. The yen's weakness has become a thorny issue for Japanese policymakers by pushing up import prices and overall inflation, with part of the blame attributed to the BOJ's slow pace of rate hikes, which has kept the interest rate gap with the US persistently wide.
Bessent's comments on the BOJ come just ahead of the central bank's closely watched monetary policy meeting on September 17-18. Sources have indicated to media outlets that the BOJ could raise rates as early as September and is considering raising them at a more aggressive pace than the current roughly twice-a-year cadence. Bessent's repeated calls for BOJ rate hikes over the years have been one factor driving the market to almost fully price in a September move, which would follow the increase implemented in June. Some analysts suggest that if the BOJ moves in September rather than October, it could reinforce bets on quarterly hikes rather than the current approximately two-per-year rhythm. Ueda stated last month that the BOJ would focus on rising inflation risks and did not rule out accelerating the pace of hikes if financial conditions are deemed too loose, though such hawkish communication has so far failed to build a durable floor under the yen.
Fiscal Expansion Collides with Monetary Tightening
Bessent's characterization of the current moves as "contained" implies that the decision on further intervention will depend on the degree of market disorder rather than a single price level like 160. However, currency intervention can only slow depreciation temporarily; the pace of rate hikes and the narrowing of the Japan-US interest rate differential remain the core variables determining the yen's trend. In his Sunday interview, Bessent said Japan has "beaten" deflation and has shifted toward "Ishibanomics" under Prime Minister Ishiba, allowing the country to now enjoy the fruits of past economic revitalization policies.
Bessent described "Ishibanomics" as more shareholder-friendly, particularly with significant labor market deregulation, implying less government intervention. "I think they should sit back and enjoy the success of Abenomics and let the benefits continue to flow through," Bessent said when discussing his advice on Japan's fiscal policy. Ishiba, who has been known for supporting Abenomics, has proposed an ambitious spending plan aimed at boosting investment in growth sectors and cushioning the impact of rising living costs on households. Critics argue that such expansionary fiscal policy conflicts with the BOJ's efforts to curb inflation through monetary tightening. Amid growing investor unease over Japan's massive debt load, Ishiba's large-scale spending plans also pushed the benchmark 10-year Japanese government bond yield to 2.945% earlier this month, the highest level in 30 years.
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