As US Bond Selloff Accelerates, Treasury Secretary Scott Bessent Says a Stronger Yen is Coming

The US bond market is experiencing an accelerating selloff that has pushed Treasury yields to their highest levels since early 2025, with the 10-year yield climbing to approximately 4.78%. 

This selloff is being compounded by geopolitical tensions in the Middle East, where renewed military exchanges between the US and Iran have sent Brent crude (CBX26) above $91 per barrel, reigniting inflation fears and reinforcing expectations that major central banks will need to maintain or tighten restrictive monetary stances.

Against this volatile backdrop, Treasury Secretary Scott Bessent made pointed remarks at the G20 finance leaders' gathering in Asheville, North Carolina, signaling that he expects both the Japanese government and the Bank of Japan to take actions that will strengthen the yen (USDJPY). 

“I have information that the market doesn’t have. And it’s my belief that the Japanese government and that the BOJ will do the things that will lead to a stronger yen,” Treasury Secretary Scott Bessent told CNBC on Monday. 

When pressed on whether this implied a BOJ interest rate hike, he noted that markets were already pricing in such a move, effectively confirming the expectation without stating it outright.

Currently, Japan is the largest international holder of US Treasury bonds. 

What’s Next After Yen Intervention Failed

The yen has been trading dangerously close to 160 per dollar, a psychologically critical threshold that has historically triggered intervention. Despite a rare joint US-Japan yen-buying intervention on July 31 — the first coordinated action since 1998 — the yen surrendered most of its gains within weeks, falling from a post-intervention high near 155.2 back toward 160. 

Japan's Finance Ministry disclosed that its intervention spending over the prior month reached a record 15.4 trillion yen, approximately $96.4 billion, underscoring the scale of Tokyo's efforts to defend the currency.

Bessent's comments mark a clear shift in emphasis from direct market intervention toward structural policy reform. He indicated that recent yen moves were not disorderly enough to warrant another joint foray into currency markets, instead urging the BOJ to raise interest rates and pressing Japan to demonstrate fiscal sustainability. 

In meetings with both BOJ Governor Kazuo Ueda and Finance Minister Satsuki Katayama on the sidelines of the G20, Bessent communicated that Japan must clearly show markets a path toward higher rates and reduced debt. He also signaled that the era of Abenomics-style massive stimulus should be considered over.

Markets are now pricing in a 73% probability of a BOJ rate hike at the September 17-18 policy meeting, with overnight swap markets at one point reflecting an 88% likelihood. Japan's 10-year government bond yield surged to 3% on Tuesday for the first time since 1996, reflecting both domestic tightening expectations and the global bond selloff. 

Analysts at Oxford Economics now forecast three BOJ hikes over the coming year — in September, December, and April 2027 — a significantly faster pace than previously anticipated. However, strategists caution that a single rate hike will be insufficient to sustainably move the yen away from 160, given that US yields remain elevated, oil prices are climbing, and Japan's terms of trade continue to deteriorate.

The Close Connections Between Tokyo and New York Markets

The interconnection between Japanese and US bond markets is a critical dimension of this story. 

Washington's concern is that a continued selloff in the yen and Japanese government bonds could force unwinding of leveraged positions, including yen carry trades, potentially spilling over into US Treasuries at a time when American borrowing costs are already under intense pressure. 

With Japan remaining the largest foreign holder of US government debt, any large-scale Treasury liquidation to fund yen intervention would directly worsen the US bond selloff. Bessent himself has acknowledged that disorderly yen volatility could raise borrowing costs for American households and businesses, framing the issue as a direct domestic concern rather than a purely foreign policy matter. 

The convergence of hawkish Federal Reserve rhetoric from Chairman Kevin Warsh, escalating Middle East hostilities, and the persistent weakness of the yen has created a uniquely fragile environment for global fixed-income markets heading into September.

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