Treasury Secretary Scott Bessent discusses how he identified the opportunity to short the Japanese yen more than a decade ago in an interview on “The Master Investor” podcast with Wilfred Frost.

WILFRED FROST, HOST: Let’s dive into one of your famous trades, if we will. You mentioned ERM, but I kind of was more interested actually in your yen trade, 2010s to early 2020s. The yen was very strong, it was below 80. You rode it for a decade as it weakened to 150 or so. What did you see in the 2011 or 12, whenever it was you started the trade? What did you see then that others didn’t see? TREASURY SECRETARY SCOTT BESSENT: Well, and this goes back to timing, that I think in psychology, a big psychological bias is called endowment bias. So you’ve worked on something, so you want to implement it. And I think one of the strengths my team and I have always had is the ability to put something back on the shelf, do an immense amount of work, and then just say now is not the time. And it was that with the Japanese yen. I think I went to Japan the first time in 1990. So I was there plus or minus six, nine months for the peak in the Nikkei. I lived at the Okura Hotel, I think for three months. Imagine 1990, the price was about $ 500 a night. In 2011, it was $ 350 a night. So that told you about the malaise there. So I’m very familiar with Japan. I’d seen the up, I saw the down, then I saw the stasis for a long time. And in 2011, right after Fukushima, terrible tragedy, tsunami, tidal wave, near nuclear meltdown, easy to remember, it’s 3-11-11 when that happened. And I thought, well, maybe there’s a catalyst here because the Japanese government demanded that the nuclear reactors be switched off. So if one was thinking of being short the yen, you were pushing against a very, very large current account surplus, about 3% of GDP. But when the Japanese switched off the nuclear reactors, they had to start importing more fossil fuels, and it took the current account to a deficit. But nothing really happened. The yen was kind of bouncing around between 78, 82 and 83. And then a contact in Japan, great fellow Funabashi-san, Japanese journalist, thinker, policy person called and said, there’s this fellow called Abe, he had been the prime minister before, he’s going to come back, I think he could be the prime minister, and he’s going to campaign on restoring the Japanese economy, economic strength as national strength, and on a reflationary platform. And then kind of everything fell into line because I believe there were three board seats opening on the Bank of Japan. Bank of Japan had been a group of deflationist or disinflationist. So prime minister was going to have the opportunity to reconstitute the board, including the governor. So everything fell into lines… FROST: I want to pick up to where we were, which you just explained your successful trade on the yen. And, and how you bought into the policies that Abe was going to deliver and what it would do to the market. I was really struck by something I read, I heard you say on the Capital Allocators podcast in November 2024. You said that your boss then George Soros asked you about whether Abenomics and the policies would work for Japan and the economy. And you said this, you say, I have no idea, but it will be the market ride of a lifetime. Of course, you’re right, you made a lot of money in that trade. I guess, now you’ve switched from investor to policymaker, judging actually whether a policy will deliver or not, as opposed to how things are priced is all that matters. BESSENT: Well, and to circle back with the Japanese, the Abenomics, all three arrows have been a fantastic success. So it started out as a market success. And then over time, like with all things Japanese, they were very deliberate and probably took a little more than Westerners, a little more time than Westerners would have liked. But the things that they’ve done to restructure the economy, restructure the investment environment in terms of the bringing up shareholder’s rights, return on capital, what they call womenomics, bringing women into the workforce. There’s now mobility among labor in terms of people switching jobs. So they’ve done a fantastic job of restructuring the economy. FROST: And now, as in your role as policymaker, rather than as an investor, do you have to ignore what the market is pricing and focus on what will actually deliver? BESSENT: No, I still find information that there is information value in the market sometimes, but what I’m trying to do is for 30, 35 years, my job was to have my ear up against the door where the policymakers were meeting, maybe try to lift myself, the transom, and figure out what they were going to do. Now that I’m in the room, we try to figure out what can be done, what should be done, what will be done, and then how will the economy and the market react. And whenever I’m out speaking during a policy time, whether post-liberation day or on the economy in general, now with the Iranian conflict, what I try to do is think about if I were sitting in my old seat as a policy person, what guidance can I give to the market, to the US population, to other policymakers around the world to give good framing for what we’re doing without giving away any material non-public information.

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