U.S. Treasury Secretary Scott Bessent stated that the Bank of Japan is likely to raise interest rates due to inflation risks. BOJ Governor Kazuo Ueda has downplayed concerns about slow rate hikes. There is “leakage” from Japan’s inflation issue affecting U.S. Treasury yields.

Rising food and raw material costs have kept Japan’s core inflation above 2% for over three years. BOJ policymakers are concerned about second-round price effects. Governor Ueda is open to raising rates but cites slow underlying inflation. Analysts blame BOJ’s slow policy for the weak yen and import costs.

BOJ plans rate reviews in September and October, with a focus on growth and inflation forecasts. U.S. Treasury Department urges BOJ to tighten monetary policy to normalize the yen’s weakness. Bessent emphasizes the importance of economic fundamentals for the currency’s stability.

BOJ raised short-term interest rates to 0.5% in January after exiting stimulus. In July, the BOJ kept rates steady but revised inflation forecasts upwards. Despite market expectations for a rate hike, Governor Ueda believes the bank is not behind the curve. Economists predict another rate hike by year-end.

Read more at Yahoo Finance: Bessent says BOJ is ‘behind the curve’ on inflation, likely to hike rates, in Bloomberg interview