Bank of Japan Rate Hike Speculation Encourages Stronger Yen, Says Mitsubishi UFG

07:12 AM EDT, 08/14/2025 (MT Newswires) -- The yen (JPY) has been the best-performing currency overnight Wednesday, resulting in USD/JPY falling back closer to the 146.000 level, said MUFG.

The main trigger for broad-based yen strength overnight has been comments from United States Treasury Secretary Scott Bessent, who told Bloomberg News on Wednesday that the Bank of Japan is "behind the curve" while stating that "they're going to be hiking and they need to get their inflation problem under control," wrote the bank in a note to clients.

Bessent added that he discussed inflation in Japan with BoJ Governor Kazuo Ueda. A BoJ spokesperson has since replied overnight, stating that Treasury Secretary Bessent and BoJ Governor Ueda regularly exchange views at international conferences.

Nevertheless, Bessent's comments have created the impression that President Donald Trump's administration is attempting to put more external pressure on the BoJ to tighten monetary policy further, which would encourage a stronger yen, stated MUFG.

At the same time, the Trump administration is continuing to intensify pressure on the Federal Reserve to cut rates. Bessent also stated Wednesday that "I think we could go in series of rate cuts here, starting with a 50bps cut in September. If you look at any model...it suggests that we should probably be 150, 175 basis points lower." Bessent believes that if the Fed had the revised weaker employment data available at prior meetings in June and July,, it would have already started to cut which creates the justification for starting with a larger 50bps cut in September to play catch-up.

A similar outcome to what happened last year, when the Fed started to cut rates by delivering a larger one-off 50bps rate cut. While the U.S. rate market has already moved to fully price in a 25bps rate cut in September, it isn't convinced that a larger 50bps cut in necessary, pointed out the bank.

Turning back to Japan, Bessent had already stated back in June in the semi-annual currency report that "BoJ policy tightening should continue to proceed in response to economic fundamentals including growth and inflation, supporting a normalization of the yen's weakness against the dollar and a much-needed structural rebalancing of bilateral trade."

However, currency policy wasn't a focus point in the recent trade agreement reached between the U.S. and Japan.

Reuters also released a news report on Wednesday indicating that the BoJ is weighing up potential changes to the way it communicates its plans to normalize policy. It follows the release of the minutes from the July policy meeting.

The Reuters report stated that pressure is building on the BoJ to drop its focus on "underlying inflation" of which there is no single indicator. As the minutes from the July policy meeting showed, one member noted that "we're at a phase where we should shift the core communication away from underlying inflation to actual price moves and their outlook."

The Reuters report adds as well that some members of the government's top economic council have warned the BoJ this month that it might be too complacent over upside inflation risks. A potential shift in communication could encourage expectations for further BoJ hikes and a stronger yen, according to MUFG.

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