What the market is getting wrong about Japan: PIIE's Adam Posen explains

• The market is underestimating the pace at which the Bank of Japan (BOJ) will tighten monetary policy.
• U.S. intervention to strengthen the Japanese yen (JPY) is likely, similar to past 'rate checks' by the Treasury Secretary.
• The Japanese government may use this external pressure from the U.S. to legitimize backing the BOJ on a tightening path and strengthening the yen.
• Japan's geopolitical position, particularly with tensions with China, leaves it with no choice but to remain closely aligned with the U.S.

Adam Posen argues that markets are underestimating the Bank of Japan's tightening pace and the likelihood of U.S. intervention to strengthen the yen. He suggests that rhetoric around Japan's fiscal policy is overdone and that the Japanese government will eventually align with the BOJ's tighter monetary stance, partly due to geopolitical pressures and the need for a tighter BOJ policy to offset loose fiscal policy.