BOJ Rate Hike Seen as Support for Equity Markets

The Bank of Japan will raise its policy rate from 1.0% to 1.25% at its upcoming meeting. This decision marks the shortest interval between hikes since March 2024. The move is driven by external pressure from the United States rather than domestic inflation alone. U.S. Treasury Secretary Scott Bessent has urged Tokyo to tighten monetary policy. The goal is to stabilize the yen and support global equity markets. This dynamic creates a mechanism described as the Bessent Put.

External Pressure Drives Policy

The U.S. administration faces midterm elections in November. Higher stock prices are a political priority. Rising Japanese interest rates help curb the yen carry trade. This reduces pressure on U.S. Treasury yields. According to GN markets/policy (en-US), the BOJ is acting as a tool for U.S. fiscal goals. If this strategy works, Japanese equities could follow U.S. gains. The traditional view that rate hikes hurt stocks does not apply here.

Rising Yields and Fiscal Risk

Ten-year U.S. Treasury yields hit 5.0% on September 14. This is the highest level since October 2023. Japanese ten-year yields are approaching 3.0%. The Takaichi administration promotes aggressive fiscal spending. No cap was set on investment for fiscal year 2027. A temporary food tax cut to 1% is also planned. These measures raise concerns about Japan's fiscal sustainability. Investors are shifting assets from U.S. Treasuries to Japanese government bonds.

Market Impact of Policy Shift

Japanese life insurers are considering selling U.S. debt. This action accelerates the rise in U.S. interest rates. The BOJ’s rate hike aims to check this spiral. Japan has no major elections until April 2027. This gives policymakers more flexibility than the U.S. government. The market is watching how the Bessent Put performs. Stock prices may rise if the yen stabilizes. The link between U.S. politics and Japanese monetary policy is now direct.