Interest rate hikes continue to appreciate the yen. Has Bessent set conditions for Japan?

The United States and Japan have begun to game the exchange rate.

On Wednesday, U.S. Treasury Secretary Janet Yellen stated in an interview with Fox Business that she is not concerned about the recent appreciation of the yen against the dollar:

"The yen is strengthening because the Japanese economy is growing robustly and inflation expectations are rising. Due to the strong domestic economic data in Japan, the Bank of Japan is raising interest rates, and all of this is a natural outcome."

This statement was interpreted by the market as indicating that while Japanese authorities have previously intervened in the yen, this will not affect the upcoming U.S.-Japan trade negotiations.

At the time of Yellen's remarks, the yen to dollar exchange rate briefly hit a six-month high, but the yen subsequently corrected after Trump announced a reduction in certain tariffs.

The yen has indeed appreciated recently. Since March of last year, the Bank of Japan has raised interest rates three times in a row, which is a rare tightening signal in nearly a decade. Coupled with global tensions, especially after Trump suddenly announced high tariffs in early April, risk aversion surged, further pushing up the yen.

Although Trump's sudden announcement to adjust the tariff plan and soften his stance caused short-term market fluctuations, leading to a retreat of the yen, the overall trend for the yen this year has been one of appreciation.

Yellen's remarks seem to indicate that she has no dissatisfaction with the Bank of Japan, but some analysts in Japan believe that her comments may not be just casual remarks. Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank, stated:

"It almost feels like a precursor to intervening in Japanese monetary policy. It sounds like she is indirectly urging the Bank of Japan to raise interest rates and let the yen appreciate."

After all, in March of this year, Trump accused Japan of gaining an unfair advantage by depreciating its currency, but Japanese Prime Minister Shigeru Ishiba and others denied this accusation. A weaker yen makes Japanese imports cheaper for the U.S., benefiting Japan, but hurting U.S. manufacturing.

Japan has intervened in the exchange rate before. Last year, when the yen approached the 160 yen per dollar mark, the Japanese Ministry of Finance intervened to pull the yen back. According to statistics, the Japanese Ministry of Finance spent about $100 billion last year to intervene in the market, helping to stabilize prices and alleviate pressure on consumers and businesses. Currently, the yen exchange rate has rebounded to around 146, significantly stronger than the low point before the intervention.

Observers of the Bank of Japan point out that the movement of the yen has become an important barometer for the future path of interest rate hikes by the Bank of Japan. The Bank of Japan has publicly stated that compared to the past, exchange rate fluctuations have a more significant impact on inflation, indicating that it may weigh the effects of excessive yen depreciation in its policy decisions