Japan Pushes Back Against U.S. Pressure on Yen Strengthening

Image Credit: MSN

When Japanese Finance Minister Katsunobu Kato meets U.S. counterpart Scott Bessent in Washington this week, the value of the yen is expected to be a key topic of discussion. However, sources suggest that Japan will resist any pressure to strengthen its currency. Despite expectations that Washington might urge Tokyo to support the yen, Japan sees little room for direct action such as currency intervention or an immediate interest rate hike, according to sources familiar with the talks.

Instead, Japan aims to understand the U.S.'s position on exchange-rate matters and how these issues fit into a broader trade negotiation. As a result, the upcoming meeting between Kato and Bessent is unlikely to meet market expectations for a major coordinated effort to boost the yen.

Japan's primary goal will be to gauge Washington's intentions, according to one of the sources. The meeting will take place on the sidelines of the International Monetary Fund's spring meeting in Washington. Japan's policymakers have stated they have yet to receive any specific requests from the U.S. regarding currency policy.

The last time the U.S. pressured Japan to strengthen the yen was in 1985, when the Plaza Accord led to a coordinated depreciation of the dollar.

U.S. President Donald Trump's focus on reducing the trade deficit and his past criticism of Japan for allegedly keeping the yen weak have led to market expectations that Tokyo will be asked to bolster the yen's value. These expectations have contributed to the yen rising to a seven-month high against the dollar.

Bessent has expressed interest in discussing tariff barriers, exchange rates, and other issues with Japan. Previous reports have suggested that Japan's slow pace in raising borrowing costs could also be discussed in the trade talks.

However, Japan faces limited options to influence exchange rates in a way that benefits both countries. Japan's most recent currency intervention was in 2024 when it bought yen to support the currency, which had dropped to a nearly three-decade low of 161.99 per dollar.

Given the broad decline in the U.S. dollar, pushing the yen to around 140, Japan is hesitant to take further steps to strengthen the currency, fearing that it could hurt exporters' profit margins amid ongoing tariff concerns.

If Japan were to engage in yen-buying intervention, it would likely need to sell U.S. Treasury bonds, a move that Washington may oppose, especially following recent turmoil in the U.S. bond market.

Further complicating matters is Japan's reluctance to use monetary policy to prop up the yen. The Bank of Japan is unlikely to raise interest rates quickly, given the potential impact of U.S. tariffs on Japan's already fragile economic recovery. Raising rates in response to U.S. demands could also undermine the BOJ's independence and damage its credibility.

Experts suggest that even if Japan and the U.S. discuss currency policies, neither side can do much to influence the exchange rate significantly. A currency intervention wouldn't make sense, and interest rate hikes are out of the question. Ultimately, the two countries may agree that stable exchange-rate movements are desirable, and that Japan should avoid intentionally weakening the yen.

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author