The Bank of Japan faces a critical policy showdown as US Treasury Secretary Scott Bessent declares that the era of massive stimulus is over.

When the US joined Japan’s efforts to support the yen, it did not do so unconditionally. This week, US Treasury Secretary Scott Bessent laid out the terms clearly: accelerate interest rate hikes and abandon outmoded ideas regarding massive economic stimulus.

A month after the rare joint intervention carried out by the US and Japan to bolster the yen, Bessent told Reuters that recent currency movements were not disorderly, signalling little appetite for fresh market intervention.

Instead, he expressed hope that Bank of Japan (BOJ) Governor Kazuo Ueda would “do the right thing” in monetary policy to combat the weak yen.

With inflationary pressures mounting, the BOJ was already widely expected to raise interest rates in September. However, Bessent’s remarks effectively boxed the central bank in, while increasing pressure for a faster pace of rate hikes going forward.

“The joint intervention in July was Bessent’s message to Japan that it now needs to get its act together on inflation,” said Izuru Kato, chief economist at Totan Research and a veteran BOJ watcher.

“Japan faces a currency crisis that is becoming increasingly difficult to control without US assistance. For a country in such a position, raising rates even once every three months may be too slow,” Kato said.

The weak yen has pushed up import prices and headline inflation, raising household living costs and creating a headache for Japanese policymakers.

From Washington’s perspective, a BOJ that moves too slowly on rate hikes, combined with loose fiscal policy, could trigger a sell-off in the yen and Japanese government bonds. This could disrupt financial markets with spillover effects reaching US Treasury yields—an outcome Washington wants to avoid.

Markets are focused on potential remarks by BOJ Governor Ueda following his participation in a two-day meeting of G20 finance leaders in Asheville, North Carolina, which concludes on Tuesday. A US Treasury official told Japanese public broadcaster NHK that Bessent met Ueda on Sunday and conveyed that interest rate hikes were necessary.

Even without US pressure, recent hawkish communication from the BOJ indicates it is preparing for a near-term rate hike in response to broadening inflation pressures.

“Given all the pressure coming from producer prices, consumer inflation is likely to accelerate. If that happens, the BOJ must act,” said a source familiar with the central bank’s thinking.

However, a September rate hike is already factored into market pricing. Consequently, the BOJ may need to commit to faster rate increases to alleviate downward pressure on the yen.

“Japan’s real interest rates are clearly too low. One or two more rate hikes will not be enough to reverse the yen’s downward trend,” said Naoyuki Shinohara, Japan’s former top currency diplomat.

Oxford Economics announced that it now expects the BOJ to raise rates in September and December this year, followed by a third hike in April 2027—a faster tightening cycle than the firm initially projected.

“The economic and political cost of disappointing the markets and the US has become too great for the BOJ and the government to ignore,” Shigeto Nagai, head of Japan economics at Oxford Economics, said in a report published on Monday.

For dovish Prime Minister Sanae Takaichi, the starkest message may be Bessent’s declaration that the era of Abenomics is over. Introduced in 2013 to end prolonged deflation, Abenomics combined sweeping monetary easing, heavy government spending, and a structural growth strategy.

Speaking to Reuters on the country’s fiscal policy, Bessent said Japan had defeated deflation and should now “sit back and enjoy the success of Abenomics and let it run its course.” Some analysts interpreted these remarks as a critique of Takaichi’s expansionary fiscal approach.

“This is a message to the Takaichi administration to avoid excessively loose fiscal policy,” a Japanese government official said regarding Bessent’s comments.

A senior ruling party official said: “These remarks show that the US is stepping up its demands on Japan’s policies.”

Both officials spoke on condition of anonymity due to the sensitivity of the matter.

Takaichi, an advocate of Abenomics, has laid out an ambitious spending agenda aimed at boosting investment in growth areas and easing the impact of rising living costs on households.

Following Takaichi’s pledge to remove spending caps in key growth areas, Japanese media reported that ministries and public agencies likely submitted their highest-ever initial budget requests for the upcoming fiscal year.

The focus on large-scale spending has unnerved investors, driving Japanese government bond yields to 30-year highs, which could also generate knock-on effects for US Treasury yields.

“The best way to support the yen would be for the Takaichi administration to deliver a credible message committing to fiscal reform,” said Shinohara, who also served as deputy managing director at the International Monetary Fund (IMF) following his tenure at the Ministry of Finance.

“However, the likelihood of that happening is extremely low,” Shinohara added.

The Indian economy expanded by more than 7% in the previous quarter, but according to an analysis by Bloomberg, this pace may prove insufficient to realise Prime Minister Narendra Modi’s target of transforming the country into a developed nation by 2047.

Modi aims for India to attain developed economy status by 2047, which marks the centenary of the country’s independence from Britain.

Ashok Lahiri, a representative of a state-backed think tank, argues that gross domestic product (GDP) must expand by approximately 9.25% annually over the next 21 years to achieve this objective.

The programme, titled “Viksit Bharat” or “Developed India”, has become one of the foremost priorities of Modi’s third term as prime minister.

However, some economists express doubt over whether India can reach this target at its current pace of expansion.

Historical growth rates lag behind targets

Economic growth averaged 6.3% between 2000 and 2024. This figure sits well below the country’s current potential rate of 7.5% to 8%.

The report noted that over the past 50 years, the Indian economy recorded growth of 9.25% or higher on only three occasions: in 1975, 1988, and 2021.

Should the Indian economy grow at a rate below 8% annually, it is assessed that the country could slip into what is known as the “middle-income trap”.

This concept describes an economic condition in which rising wages and costs erode the advantage of cheap labour, whilst worker productivity and skill levels have not yet risen enough to compete successfully with developed economies.

The report also noted that attaining high-income country status remains a distant prospect. As of 2025, per capita income in the country stands at $2,813.

For India to cross the high-income threshold by 2047, this figure must increase more than sixfold to reach approximately $18,000.

Targets missed across industry and investment

Economists state that the manufacturing industry must be expanded to accelerate India’s growth.

The Modi administration is also placing emphasis on this sector, yet its share of GDP has remained at roughly 16% to 17% for more than a decade. This proportion falls significantly short of the 25% target set by Modi.

Economists further emphasize that expanding high-tech exports, lifting private sector investment, and curbing reliance on energy imports could accelerate economic growth.

It is also noted that the country needs to draw more foreign investment into manufacturing. Despite record levels of foreign direct investment, India is reportedly struggling to retain this capital domestically.

Indian companies are progressively stepping up their investments abroad, whilst foreign investors are scaling back funding for local ventures.

A high domestic savings rate is likewise critical for India’s economic growth.

Savings allow the construction of factories and infrastructure to be financed without excessive reliance on costly borrowing and foreign capital. However, the capacity of Indian households to save remains constrained by relatively low income levels.

According to a 2021 report by NITI Aayog, approximately 87 million people in India aged between 15 and 29 are neither employed nor in education or vocational training.

Owing to a shortage of employment opportunities, roughly 60% of the working population is self-employed, with the bulk of this cohort engaged in the low-income agricultural sector.

Shumita Deveshwar, Chief Economist at GlobalDataTS Lombard, noted that without a rise in private sector investment and an acceleration in job creation, India will struggle to maintain GDP growth above 6%, let alone reach the pace of over 8% required to achieve developed economy status.

The country’s administration plans to undertake record borrowing of 17.2 trillion rupees (approximately $187 billion) during the fiscal year starting 1 April. This sum represents an 18% increase compared with the current year and surpasses Bloomberg’s previous forecast of 16.5 trillion rupees.

The government projects that the ratio of the fiscal deficit to GDP, which stands at 4.4% in the current period, will decline to 4.3% in the next fiscal year.

Russia and China are progressively narrowing the space gap with the US, according to an assessment by The Washington Post (WP). The newspaper reported that the technological superiority of the US in this domain is beginning to erode, noting that fresh advancements achieved by Moscow and Beijing could create risks for Washington.

The newspaper pointed to China’s recent progress as an example of this trend. In August, a Chinese aerospace company successfully landed a rocket’s first stage on Earth for the first time.

Previously, only US-based companies SpaceX and Blue Origin possessed this technology. The ability to reuse rocket stages significantly reduces launch costs.

The WP also drew attention to Russia’s Rassvet satellite system, which is planned to deliver internet connectivity from space.

The newspaper noted that this system could be utilised by the Russian military. According to the assessment in the report, the Rassvet system could provide Russia with capabilities comparable to those offered by SpaceX’s Starlink satellite network.

According to the newspaper, among the primary challenges facing the US are ageing launch pads and other space infrastructure. Modernising this infrastructure requires securing additional funding from the US Congress.

The WP further emphasised the necessity of streamlining commercial launch licensing procedures, which currently can take an extended period.

Observing that the US maintains its superiority for now thanks to a robust private space sector, the newspaper stated that Washington must increase launch frequency and invest in infrastructure renewals to preserve its leadership.

According to a May 2025 report by The Times, the US has begun sharing certain data on Russian and Chinese space operations with Britain and other members of the “Five Eyes” intelligence alliance.

This measure was taken in line with Washington’s concerns over Beijing’s advances in military space capabilities. In this context, allies were granted access to intelligence from Space Delta 9, the US Space Force unit that tracks Russian and Chinese satellites.

Russia and China, meanwhile, continue to pursue joint space projects. Russian President Vladimir Putin stated in April 2025 that Moscow and Beijing have “grand” and “magnificent” plans in this field.

In 2024, Russia ratified an agreement with China regarding the International Lunar Research Station, which is planned to be established on the lunar surface or in lunar orbit.

Former NASA Administrator Jim Bridenstine called on Russia, the US, and China in October 2025 to cooperate in space. Stating that the interests and activities of nations could intersect in space, Bridenstine said the parties could not operate alone.

Bridenstine also recalled that space cooperation between Moscow and Washington had commenced during the Cold War.