Bessent: As long as the Bank of Japan takes appropriate measures, the yen will be in a reasonable position.

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As the Japanese yen continues to weaken, U.S. Treasury Secretary Bessente commented on the direction of Japan's monetary policy.

In recent days, Bessente publicly stated that if the Bank of Japan continues to implement proper monetary policy, the yen's exchange rate will eventually stabilize at an appropriate level, which seems to bring a cautious signal of optimism to the turbulent yen market.

At the same time, according to the latest reports from Nikkei and others, Bessente refused to comment on the specific exchange rate level of the yen or on Bank of Japan Governor Kazuo Ueda's upcoming policy decision on October 30, only stating that Ueda is "very capable."

Bessente's remarks come as the yen's weakness intensifies. Since the beginning of this month, the yen's depreciation against the dollar has been at least twice as fast as other major currencies, hitting an eight-month low of 153.27 on October 10.

Japan’s officials have remained highly vigilant regarding the rapid depreciation of the yen. On Thursday morning in Tokyo, the yen traded around 150.60 against the dollar. Japanese Finance Minister Katsunobu Kato, responsible for FX interventions, told reporters in Washington that he is witnessing "the exchange rate fluctuating rapidly towards yen weakness."

Analysts believe that Bessente's latest remarks show a noticeably softer attitude compared to his tough tone in August, when he said the Bank of Japan was "behind the curve" in dealing with inflation.

Yen Under Pressure, Bank of Japan Rate Hike Expectations Plummet

The core factor putting pressure on the yen is the rapid dissipation of market expectations for the Bank of Japan to tighten policy.

According to overnight swap market pricing data, as of this Thursday, traders estimate the likelihood of a Bank of Japan rate hike this month is only about 15%, down from about 70% at the end of last month.

Domestic political uncertainty in Japan is believed to be the main reason for the shift in market expectations. After unexpectedly winning the ruling Liberal Democratic Party presidential election earlier this month, Sanae Takaichi is striving to secure enough parliamentary votes to assume the role of the next Prime Minister.

After the Komeito Party exited the ruling coalition last week, Sanae Takaichi has stepped up efforts to seek support from another opposition party. Japan's National Diet is expected to elect a new Prime Minister next week.

Persistent Inflation, Long-Term Pressure on Bank of Japan Remains

Despite a cooling of short-term rate hike expectations, ongoing inflation remains a long-term challenge for the Bank of Japan.

Data shows that Japan’s consumer price index (CPI) growth has stayed at or above the 2% target level for over three years, while real wages have declined for much of the time.

In an interview with Bloomberg in August, Bessente himself also said the Bank of Japan will need to raise rates in the future to address its inflation problems.

This highlights that regardless of short-term changes in the political landscape, controlling inflation remains a core issue Japan’s monetary policymakers cannot avoid.

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