Bessent: As long as the Bank of Japan's measures are appropriate, the yen will be at a reasonable level

As the yen exchange rate continues to weaken, U.S. Treasury Secretary Janet Yellen has expressed her views on Japan's monetary policy direction.

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

At the same time, according to recent reports from Nikkei News and others, Yellen declined to comment on the specific exchange rate level of the yen or on the next policy decision by Bank of Japan Governor Kazuo Ueda on October 30, only stating that Ueda is "very capable."

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

Japanese officials are maintaining a high level of vigilance regarding the rapid depreciation of the yen. On Thursday morning in Tokyo, the yen was trading around 150.60 against the dollar. Katsunobu Kato, Japan's finance minister responsible for foreign exchange intervention, told reporters in Washington that he is seeing "the exchange rate rapidly fluctuating towards yen weakness."

Analysts believe that Yellen's latest remarks indicate a noticeable softening of her tone compared to her strong stance in August when she stated that the Bank of Japan was "behind the curve" in addressing inflation.

Yen Under Pressure, Expectations for BOJ Rate Hike Plummet

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

According to pricing data from the overnight swap market, as of Thursday this week, traders believe the likelihood of the Bank of Japan raising interest rates this month is only about 15%, down from around 70% at the end of last month.

Political uncertainty within Japan is seen as 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 working to secure enough votes in parliament to become the next prime minister.

Following the Komeito party's exit from the ruling coalition last week, Takaichi has intensified efforts to gain support from another opposition party. The Japanese parliament is expected to elect a new prime minister next week.

Persistent Inflation, Long-term Pressure on BOJ Remains

Despite the cooling of short-term rate hike expectations, ongoing inflationary pressures remain a long-term challenge for the Bank of Japan.

Data shows that Japan's consumer price index (CPI) growth has remained at or above the 2% target level for over three years, while real wages have been declining for most of that time.

Yellen herself stated in an August interview with Bloomberg that the Bank of Japan will need to raise interest rates in the future to address its inflation issues.

This highlights that regardless of how the short-term political landscape evolves, controlling inflation remains a core issue that Japanese monetary policymakers cannot avoid