The United States pressures Japan to adjust its economic policy, with the yen's exchange rate and interest rate hikes becoming focal points.

Japan took a sudden hit from the United States! On September 3rd, according to Nikkei News, Japanese media reported that the U.S. government is intensifying pressure on Japan's economic policies. Concerned about the potential impact of Japan’s interest rates rising to their highest level in 30 years on the U.S., American officials urged Japan to adopt disciplined fiscal management. U.S. Treasury Secretary Bessent, during meetings with Japanese officials, stated: "We strongly support Japan taking firm market and monetary policy measures to address the severe undervaluation of the yen."

I have already conveyed to Japan that it should halt its reflationary policies. It is clear that the U.S. is issuing an unequivocal warning to Japan over concerns that Japan's monetary and fiscal policies could spill over and affect the U.S. Now, the U.S. finds itself in a very awkward position. If Japan continues maintaining loose monetary policy and the yen keeps depreciating, Japan’s export competitiveness will strengthen, increasing pressure on U.S. domestic manufacturing and worsening the trade deficit—leading to discontent among U.S. domestic industries.

Conversely, if Japan rapidly raises interest rates, pushing up Japanese bond yields, a large amount of international capital may flee U.S. bond markets in search of higher returns in Japan. In that case, the U.S. would be forced to raise interest rates to attract capital back—but this would inevitably lead to higher interest payments on U.S. debt, which is clearly not what the U.S. wants. In short, the U.S. now directly intervening in Japan’s domestic policy aims to keep the yen from weakening too much while also preventing Japan from raising rates too aggressively.

From the U.S. stance, Japan has likely come to understand: the U.S. doesn’t actually care how well Japan’s economy performs—it only cares whether Japan’s actions align with U.S. interests. The U.S. has drawn a line for Japan: neither too left, nor too right. As for whether such a middle-of-the-road policy can actually solve Japan’s domestic economic problems, that’s no longer the U.S.’s concern. With such a tough warning from the U.S., Japan now faces the dual challenge of addressing its own issues—a real blow to Prime Minister Kōshō Asō’s administration.

Original source: toutiao.com/article/1875274660659212/

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