The US Treasury has publicly detailed the meeting between Treasury Secretary Scott Bessent and Bank of Japan Governor Kazuo Ueda, revealing a clear message from Washington that it wants Japan to use its monetary policy and market actions to address the yen's weakness.

According to the readout released by the US Treasury on Tuesday, September 1, during his meeting with Ueda on Sunday, August 30, Secretary Bessent "strongly supported Japan's decisive market and monetary policy measures" to counter what he described as a "clearly undervalued" yen. He also pointed out that the weak yen is intensifying inflationary pressures within Japan.

The Secretary also took to social media that day, expressing his delight at meeting his "long-time friend" Ueda on the sidelines of the G20 Finance Ministers and Central Bank Governors meeting. Their discussion covered the US-Japan alliance, shared macroeconomic and financial policy priorities, the normalization of Japan's monetary policy, and the importance of anchoring inflation expectations and avoiding excessive exchange rate volatility through sound policymaking and clear communication.

This stance continues the policy signals Bessent has been sending in recent days. On August 31, Bessent told CNBC that he believes the Japanese government and central bank will take steps to help strengthen the yen. Additionally, according to a report from Japanese media outlet NHK, a senior US Treasury official indicated that Bessent called for further rate hikes during his conversation with Ueda.

So why is Washington emphasizing "excessive volatility" in the yen at this moment?

Looking at the Treasury's description of the talks, Washington's current focus extends beyond the yen's exchange rate itself to the connection between the yen, inflation, and Japan's monetary policy.

The Treasury stated that Bessent stressed the critical importance of formulating and communicating monetary policy in a sound manner to anchor inflation expectations and avoid excessive currency volatility.

The department also noted that Bessent expressed "strong support" for Japan's previous market and monetary policy measures taken in response to the yen's significant undervaluation, specifically mentioning that the weak yen is adding to domestic price pressures.

A depreciating yen pushes up the cost of imported goods and energy, transmitting those higher costs through to domestic prices. With inflation in Japan still exceeding the central bank's long-term target, a persistently weak yen also makes it harder for the BOJ to continue its accommodative policy stance.

Therefore, the real point Bessent is making is this: Japan needs a more robust and clearly defined policy path to stabilize inflation expectations while also reducing excessive swings in the yen's value.

Bloomberg notes that Bessent has previously hinted on several occasions that Japan needs to raise interest rates to support the yen. The Treasury's public release of these details following his meeting with Ueda effectively signals further backing for Japan to take action.

Bessent's repeated hints point towards further rate hikes in Japan.

While the official Treasury readout does not directly state a "demand for a Japanese rate hike," Bessent's recent public comments have repeatedly linked a stronger yen to the normalization of Japanese monetary policy.

On August 31, during his interview with CNBC, Bessent said he believes "the Japanese government and the Bank of Japan will take measures that will help move the yen in a stronger direction."

When asked if that implied a possible rate hike by the BOJ, Bessent said he believes the market is "already pricing that in now."

He also mentioned possessing information that "the market doesn't have," leading him to believe the Japanese government and central bank will ultimately act in favor of a stronger yen.

It has been reported that a senior US Treasury official told NHK on Monday that Bessent called for further rate increases in Japan during his August 30 meeting with Ueda.

However, Reuters points out that the Treasury did not confirm this specific phrasing in its official readout. A more accurate interpretation for now is that Bessent is continuously and publicly advocating for Japan's monetary policy normalization, rather than the Treasury formally announcing Japan must hike at a specific meeting.

The yen's weakness persists despite the rare joint intervention in late July.

Another important backdrop to Bessent's meeting with Ueda is the rare coordinated intervention in the currency market by the US and Japan in late July.

On July 31, the US and Japanese governments jointly bought yen to support its exchange rate. This rare joint action was partly aimed at curbing the yen's excessive depreciation and the subsequent financial market volatility.

But the joint intervention did not completely reverse the yen's weakness.

Bessent also stated on August 31 that the US cannot change the "natural equilibrium" of exchange rates, but policy actions can send signals to the market. He also expressed confidence that the Japanese government would take measures to strengthen the yen.

This explains why the meeting between Bessent and Ueda is receiving such close attention from the market.

Compared to the direct currency market intervention of late July, Bessent is now placing greater emphasis on Japan's own policy adjustments—improving the yen's fundamental outlook through monetary policy normalization, clearer policy communication, and anchoring inflation expectations.

With the September meeting approaching, the probability of a rate hike has surged to nearly 100%.

As Bessent continues to signal, the BOJ's policy choice at its September meeting has become a market focal point.

Bloomberg, citing overnight index swap data, reports that as of September 1, the market-implied probability of a BOJ rate hike on September 18 has reached approximately 99%, more than doubling from a month earlier.

The central bank's next policy meeting is scheduled for September 17-18.

One reason behind the rising market bets is that domestic inflation in Japan remains above target, while the weak yen pushes up import costs further. In this context, the policy pressure on the BOJ is shifting from "whether to continue normalization" to "how quickly to normalize."

For the US, Japan's monetary policy also carries broader implications for global financial markets.

If the BOJ maintains a relatively loose policy and the yen continues to weaken, it could further fuel inflation in Japan. Conversely, if the BOJ accelerates rate hikes, it could strengthen the yen, while also impacting Japanese government bond yields and global capital allocation.

Therefore, the key takeaway from the Bessent-Ueda meeting is not just whether the US supports a stronger yen, but that the Treasury is now openly discussing the yen's exchange rate, inflation, and Japan's monetary policy normalization within a single policy framework.

Following the rare joint currency intervention in late July, Washington is now sending a further signal of support for Japan to use monetary policy and market measures to stabilize the yen. With the BOJ's September meeting approaching, the market's focus will remain squarely on how Ueda balances inflation, the exchange rate, and economic growth in the coming period.