Japan’s Vice Finance Minister for International Affairs Atsushi Mimura suggested the USD/JPY price is being driven by factors beyond interest rate differentials. As Bloomberg reports, Mimura observed that there has been “a steady decline in long-yen positions since around the summer owing to factors ranging from trade and geopolitics to speculation over Japan’s fiscal spending plans.”
Japanese Finance Minister Satsuki Katayama has, meanwhile, stated that there is no change in policymakers’ “stance of assessing developments with a high sense of urgency”.
However, both Goldman Sachs and Bank of America see little risk of immediate currency intervention in the country. With one Goldman strategist noting that the yen “does not appear to be at particularly weak levels”.
Longer term though, some hedge funds are seeing further weakening, with funds betting on JPY reaching as low as 160 per dollar by the end of the year.
Local politics, global trade
For Japan’s new administration, the prospect of a weaker yen is a potential political headache. Donal Trump has consistently accused Japan of deliberately keeping its currency weak to give it an unfair trading advantage.
Japan’s new prime minister, Sanae Takaichi, needs to walk a tightrope between gradual monetary tightening and not risking aggravating the White House with a persistently weaker yen.
The difficulty points to a broader contradiction of Trump’s economic agenda. On one hand, Trump has repeatedly called for lower US interest rates and a stronger foreign currency environment to bolster American purchasing power. On the other hand, his administration’s use of tariffs and the resulting global uncertainty have tended to exert downward pressure on other countries’ currencies, as trading partners, including Japan, have maintained a degree of export competitiveness due to currency weakness.
Dollar dynamics
We previously discussed how the dollar’s ongoing role in global trade will depend both on the strategic choices made in Washington and the cooperation (or otherwise) of other states.
As Japan’s situation demonstrates, governments must constantly balance global economic imperatives with domestic pressures, from safeguarding growth to satisfying voters. This interplay between international strategy and local politics will continue to shape currency markets.
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