Scott Bessent Calls for Japan to End Economic Stimulus Amid Rising Bond Yields

Scott Bessent, the US Treasury Secretary, made a significant statement at the G20 meeting in Asheville, North Carolina, on August 31, emphasizing that Japan should end its era of massive economic stimulus. He argued that the time has come for Japan to adopt fiscal responsibility and consider raising interest rates, as the deflationary pressures that prompted Abenomics have dissipated.

Bessent's comments followed Japan's record spending of $98.7 billion in August to stabilize the yen, which required coordination with the US. This intervention came as the Bank of Japan (BOJ) had already begun to edge towards policy normalization, raising its target rate to approximately 1% in June 2026—a significant shift from the negative interest rates that had been in place for years.

By publicly addressing Japan's economic strategy, Bessent has transformed a domestic debate into an international economic issue, pressuring Tokyo to respond. Expectations for a BOJ rate hike at the upcoming September meeting have surged, as Bessent's remarks suggest that Washington seeks more than just minor adjustments in Japan's monetary policy.

In a related development, Japan's 10-year government bond yield recently touched 3% for the first time in decades, reflecting a broader global bond market rout. As yields rise, the cost of servicing Japan's significant debt, which stands at a debt-to-GDP ratio near 250%, is expected to increase, adding further pressure to the country's fiscal situation.

Market analysts are closely watching the BOJ's upcoming meeting on September 17-18, where a potential rate hike to 1.25% could signal a more rapid normalization of Japan's monetary policy than previously anticipated.