KATAYAMA BECOMES JAPAN`S VITAL LINK BETWEEN BESSENT, TAKAICHI AND MARKETS /

Katayama becomes Japan’s vital link between Bessent, Takaichi and markets

Finance minister is a pivotal figure for relations with Washington and global investors

Leo Lewis and David Keohane in Tokyo

US Treasury secretary Scott Bessent and Satsuki Katayama at the G20. Japan’s finance minister said there had been ‘no demand’ from the US at the summit for her country to raise interest rates © MOF Japan/X

In a week that saw a historic rise in Japanese 10-year bond yields and frenetic messaging on monetary policy, Japan’s finance minister has emerged as a pivotal figure for Tokyo, Washington and global markets.

On Friday, Satsuki Katayama sought to calm investors by insisting she received “no demand” this week from US Treasury secretary Scott Bessent for Japan to raise interest rates, as she returned to Tokyo after a Group of 20 meeting of finance leaders in North Carolina.

The visit, during which Bessent told reporters he was sure the Bank of Japan would “do the right thing” and indirectly criticised the reflationary spending plans of Japan’s prime minister Sanae Takaichi, highlighted the crucial role played by Katayama.

“There was absolutely no sense whatsoever that I had received any demands from him or that I had been pressed or interrogated about anything,” Katayama told a press conference in response to rising market speculation that she and BoJ governor Kazuo Ueda had come under heavy pressure from Washington for the central bank to raise interest rates at its next meeting on September 18.

In the course of the week, the yields of Japan’s 5-year and 40-year government bonds rose to record levels and the yen veered between a low of ¥160 against the dollar and ¥155.3.

Japan’s first female finance minister, a self-styled “common sense conservative” who worked for decades as a finance ministry official before entering politics, has been key to Takaichi’s plans to stimulate growth with massive spending while convincing markets that fiscal discipline remains a priority.

Traders said markets may need more convincing. 

For the first time since 1996, Japan’s benchmark 10-year bond yield went above 3 per cent, pushed higher by a cocktail of concerns about global energy prices, inflation and its own fiscal stability.

That presents a potentially formidable challenge for Katayama, under what are already tense conditions between Bessent and Tokyo.

In the budget for the fiscal year ending in March 2027, said Kentaro Koyama, Japan economist at Deutsche Bank in Tokyo, the government’s assumption for 10-year JGB yields is an average 3 per cent. 

The fact that the yield had already hit that level, and the prospect that interest payments would be higher than budgeted for, could be challenging.

Satsuki Katayama has styled herself as a ‘common sense conservative’ and was a finance ministry official before entering politics © Juntaro Yokoyama/Kyodo News via AP

“The credibility of the yield is very important. It’s a big problem,” said Koyama.

Added to Katayama’s burdens is the weakness of the yen. 

Tokyo spent a record $96bn on a joint Japan-US currency intervention in July and August and Bessent has voiced concerns that a breakdown in order in yen markets could trigger global financial instability and ultimately harm the US economy.

The recent sell-off of bonds, coupled with a perception that the Japanese government may be losing some control over yields, has added to concerns of a broader period of volatility for the yen and of an accompanying unwind of the yen carry trade. 

Some worry that a disorderly unwind could send shockwaves across the global financial system.

Analysts at JPMorgan warned in a note to clients on Friday that if the yen “were to break below 155, the risk cannot be ruled out that selling could beget further selling and drive a larger than expected yen appreciation”.

“Our estimates suggest JPY shorts amount to ¥16–17tn, and if this position were to be fully unwound, USD/JPY could fall to the 142–146 range,” they said.

Katayama has to tread carefully.

On one side is a US Treasury secretary who has been blunt in his preference for Japanese interest rate increases and said the reflationary policies of the “Abenomics” era had run their course. 

On the other side, Katayama, whose finance ministry background trained her in the instinct for fiscal consolidation, must manage her alliance with Takaichi, who as recently as last year’s election campaign was praising the benefits of a weaker yen and whom economists say seems comfortable with confronting the bond market in pursuit of her vision for a “strong and prosperous Japan”.

Katayama appears for now to be managing the position effectively, according to Deutsche Bank’s Koyama, who said that while it appeared there was a significant difference of opinion between Bessent and Takaichi on how Japan should approach its fiscal health, the gap between the US Treasury secretary and Katayama was smaller, accentuating the importance of the finance minister’s diplomatic role.

Prime Minister Sanae Takaichi won a big election victory in February and is pushing to raise public spending © Bloomberg

Katayama’s background at a branch of government known for favouring fiscal discipline suggested that she and Takaichi would clash spectacularly, said analysts, as the prime minister’s huge election win in February emboldened her to push ahead with policies set to strain the fiscal position of one of the world’s most indebted countries. 

In a book published in 2025 shortly before she was appointed finance minister, Katayama praised the attempt by Elon Musk, who at the time was heading the US Department of Government Efficiency, to attack government spending.

“Katayama used to work for the Ministry of Finance, but she was also appointed by Takaichi. 

So Katayama’s position seems to be somewhere in the middle between the Ministry of Finance and the administration,” said Ayako Fujita, chief Japan economist at JPMorgan.

Takaichi has pushed for a consumption tax cut which will strip an estimated ¥5tn per year from the public purse. 

On August 31, ministries submitted a combined ¥143tn of budget requests — an all-time record and what Takahide Kiuchi, a former BoJ board member, said risked an “unprecedented fiscal deterioration” for a Japanese peacetime government.

But Yu Uchiyama, a political scientist at Tokyo University, said Katayama had so far presented as Takaichi’s closest cabinet ally.

There has been no visible conflict between the two, and despite speculation over the summer, there is a low likelihood that Katayama will be replaced in a cabinet reshuffle expected later this month.

“Katayama is flexible and can change her mind,” said Uchiyama.