US Treasury Secretary Scott Bessent has stated that the Japanese Yen has substantially overshot its equilibrium price and is very undervalued, according to Fox Business. Bessent added that the Yen is very cheap even as the economy is performing well, offering a candid assessment of the currency's current positioning in global markets. These remarks build on earlier comments flagged by Fox Business correspondent Edward Lawrence, who reported that Bessent had also flagged excess volatility in the Yen as unhealthy.

Bessent's Assessment of the Yen

The Treasury Secretary's latest remarks provide a more detailed characterisation of the Yen's condition, moving beyond volatility concerns to address the currency's fundamental valuation. Bessent specifically noted that the Yen has overshot its equilibrium price by a substantial margin, suggesting the currency is trading well below levels consistent with economic fundamentals. His observation that the Yen is very cheap while the economy is doing well highlights a disconnect between market pricing and underlying economic conditions.

Stance on Yen Strengthening

Notably, Bessent stated he is not concerned about the Yen strengthening against the dollar, a position that signals US comfort with a potential appreciation of the Japanese currency. This stance is significant given that a stronger Yen could have broad implications for trade balances and capital flows between the United States and Japan. Earlier, Lawrence had also cited Bessent as a source when reporting that Japan may have intervened in its currency markets, linking potential market action to the Treasury's broader concerns about stability.

US Treasury's Broader Currency Policy Perspective

Bessent's comments collectively reflect the US Treasury's emphasis on orderly and fundamentally anchored foreign exchange markets. The dual focus on excessive volatility and significant undervaluation underscores Washington's preference for currency stability among key trading partners. His remarks, communicated via Fox Business, have drawn attention from global financial observers monitoring the trajectory of US-Japan economic relations.

The Japanese yen has depreciated to its weakest level since late 1986, driven by a significant interest rate differential between the United States Federal Reserve and the Bank of Japan. As of Tuesday morning, the currency pair touched 162.77 yen per U.S. dollar, a threshold not crossed in nearly four decades.

Over the past five years, the U.S. dollar has strengthened by nearly 50% against the yen. This movement is primarily fueled by the carry trade, a mechanism where investors borrow yen at Japan's low interest rates to invest in U.S. dollars that offer higher yields, profiting from the spread.

The sustained weakness of the yen has impacted financial instruments tracking the currency. The Invesco CurrencyShares Japanese Yen Trust has declined nearly 10% over the last twelve months, reflecting the broader market trend.

Market Performance

The currency's slide highlights the ongoing divergence in monetary policy between the two central banks, with the Federal Reserve maintaining higher rates compared to the Bank of Japan's accommodative stance.