Bessent's Big Talk Runs Into Bigger Market Realities
Bessent came up under George Soros and Stanley Druckenmiller, and he's been leaning on that pedigree as leverage over markets themselves - warning traders who bet against his priorities that they'll get burned.
He's cautioned against pushing oil higher, driving bond yields up, or selling the yen, suggesting his inside knowledge, financial muscle and government connections give him an edge no ordinary trader can match.
But markets aren't buying it. Oil has climbed back above $100 a barrel. Treasury yields, despite a massive government buyback program meant to hold them down, are drifting toward multi-year highs near 4.85%, with 5% looking increasingly likely.
Nobel laureate Paul Krugman has argued that Bessent's efforts to talk rates down are simply failing. It's clear his“attempts to push down US interest rates... are failing with flying colors,” Krugman wrote in a Substack post.
The yen, meanwhile, is off its highs, even as Bessent claims, bizarrely, that“I am the house now” where betting against the yen is concerned.
That claim would likely surprise Japan's own finance minister, Satsuki Katayama, and Bank of Japan Governor Kazuo Ueda - and it's doing little for Bessent's credibility.
This week's yen strength looks, on the surface, like a turning point. The joint US-Japan intervention to prop up the currency - the first of its kind since 1998 - has traders on edge. But the rally rests on two shaky premises.
First, a stronger yen cuts against what Prime Minister Sanae Takaichi actually wants. With Japan's economy stalling, her approval ratings sinking and Chinese exports up 25% year-on-year, she has every incentive to keep the yen weak - just not weak enough to anger Washington.
Second, Bessent's real fight isn't with Tokyo at all - it's with the US Federal Reserve. Japan's chronically undervalued currency has been official policy for decades.
Since the late 1990s, successive prime ministers have pushed the BOJ toward easier money and a softer yen, and Takaichi - a protégé of the late Shinzo Abe - has followed that script aggressively since taking office last October, cutting taxes, ramping up spending, and openly dismissing the case for higher rates as“stupid.”
Reality is intervening anyway. Bond vigilantes have pushed 10-year Japanese government yields to 3%, a three-decade high, and even Takaichi's allies are coming around to the idea that rates need to rise. The weakest yen in 40 years drove up import costs and inflation, forcing the issue.
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