The reflationary policy should be stopped. A number of strong messages sent by U.S. Treasury Secretary Bessent to the Japanese government are causing a stir. What is Mr. Bessent's true intention in ordering Japan's fiscal and monetary policy, even though he is prepared to be criticized for ``interfering in internal affairs'' (according to market participants)? How will the Japanese government respond to the "advice"?
Dissatisfied with the “curse” of Abenomics?
1st (2nd Japan time), Asheville, North Carolina, southeastern United States. "We have talked with Japan," Bessent said in a presiding speech at the end of the Group of 20 Finance Ministers and Central Bank Governors meeting, praising him for "telling them that they have had great success with Abenomics." On the other hand, he continued, saying that he also conveyed the following to Japan.
“Reflationary policy should be stopped.”
Reflationary policy is the promotion of fiscal expansion and monetary easing, and Bessent used it as a synonym for Abenomics, the economic policy of the second Shinzo Abe administration that aimed to overcome deflation.
Yasunari Ueno, CEO of Market Concierge, said, ``These comments are a sign of irritation with the ``curse of Abenomics'' that the Takaichi administration, which is oriented towards aggressive fiscal policy and monetary easing, is under.''
The Takaichi administration has advocated ``responsible and active public finance'' and is promoting large-scale investments, but there are persistent concerns in the financial market that this could lead to fiscal deterioration and inflation (rise in prices). One of the reasons why long-term interest rates exceeded 3% on the 1st for the first time in 30 years is due to the government's aggressive fiscal stance.
Bessent's concern appears to be the rise in Japan's long-term interest rates.
January this year. When U.S. long-term interest rates rose, Bessent blamed Japan for the rise in U.S. interest rates, saying, "It's very difficult to separate out the spillover effects from Japan."
At that time, in Japan, the ruling and opposition parties competed in their pledges to reduce the consumption tax before the general election, which caused Japan's long-term interest rates to rise.
It is possible that the latest ``reflationary remarks'' were made out of fear that the rise in interest rates originating in Japan would have a ripple effect on U.S. interest rates.
Meanwhile, when he met with Bank of Japan Governor Kazuo Ueda on August 30, he said, ``The weak yen is one of the causes of inflationary pressure in Japan.''
Rising prices are also a major factor pushing up long-term interest rates. Mr. Bessent's cooperation in the coordinated yen-buying intervention by the Japanese and U.S. governments at the end of July to correct the excessive depreciation of the yen against the dollar can be interpreted as an attempt to stop the negative cycle in which the depreciation of the yen causes import prices to rise, which in turn pushes up long-term interest rates.
"Although Abenomics was a success, Mr. Bessent now sees the risk of exacerbating Japan's inflation problem," said David Bowling of the Asia Group, a U.S. consulting firm. "Mr. Bessent's concern is that Japan continues to maintain fiscal and monetary policies designed to combat deflation, even though Japan's current problem is inflation."
During the G20 meeting, Bessent repeatedly expressed strong expectations for the Bank of Japan to raise interest rates soon. Increased expectations for interest rate hikes could also push up long-term interest rates, but the Bank seems to believe that if prices rise sharply without raising interest rates, long-term interest rates could rise significantly.
For this reason, it is possible that he is dissatisfied with the Takaichi administration's reluctance to raise interest rates at the Bank of Japan.
Why is Mr. Bessent so nervous about his country's high interest rates?
The Trump administration will be judged on the midterm elections this November. With inflation becoming an issue and affordability becoming a point of contention, many point out that the U.S. administration is worried that rising interest rates will lead to higher mortgage rates, which will weigh on the lives of Americans.
In August, the U.S. Treasury Department, led by Bessent, has shown a willingness to do whatever it wants, announcing in August that it would double its repurchases of U.S. Treasuries, which have the effect of lowering long-term interest rates. In response to Bessent's comments regarding Japan taking policies that could lead to an increase in long-term interest rates, Mr. Ueno said, ``I could see the strong dissatisfaction of the U.S. administration.''
Finance Minister Katayama ``I've never been questioned''
U.S. Treasury Secretary George Bessent on the 1st...
