Japan's Prime Minister Sanae Takaichi laid out her government's new economic approach on Thursday, aiming to restore confidence in the yen after past efforts didn't hit the mark. Speaking on Nippon Television, Takaichi stressed that her administration's strategy is about lifting Japan's growth potential through targeted investments, steering clear of exchange rate manipulation.
Takaichi pointed to her recent talks with U. S. President Donald Trump, where they discussed the yen's low valuation. She remarked, "Our economic policy is not aimed at manipulating exchange rates. My administration aims to boost Japan's growth potential by increasing the economy's supply capacity through bold investment in crisis management and growth areas." The goal is to make Japan more competitive on the world stage and rebuild market trust in the yen.
The yen has made some gains, ranking as the best-performing currency in the G10 during the third quarter. This recovery was helped by a joint intervention by the U. S. and Japan, along with the Bank of Japan's 25 basis point rate hike in September. As of 5.57 a.m. ET Thursday, the yen was up 3.3% against the dollar, though it's still below its late July highs.
Despite these improvements, analysts urge caution. Kit Juckes, chief FX strategist at Societe Generale, observed that the market still expects more USD/JPY intervention. He also cautioned that a jump in oil prices could undermine the recent positive outlook.
FX strategists Sim Moh Siong and Christopher Wong from OCBC Group Research expressed doubts about the yen's valuation easing depreciation pressures. They argue that while intervention might stop chaotic depreciation, it won't lead to a lasting recovery without changes in domestic policies.
The yen's weakness is a thorny issue for Japan's policymakers, as it drives up import costs and fuels inflation. Critics have pointed fingers at Takaichi's spending plans, saying they add pressure on the currency and push bond yields higher. U. S. policymakers are reportedly uneasy that yen weakness might lead Japan to offload its U. S. Treasury holdings. With over $1.1 trillion in U. S. debt, Japan is the largest foreign holder.
Addressing these challenges, Takaichi pledged that the Japanese government would align spending with efforts to cut the debt-to-GDP ratio and handle bond issuances wisely. "We will secure funding in responding to fiscal needs, " she stated, underlining a commitment to fiscal responsibility.
