Japan's finance minister reiterated concerns: the undervaluation of the yen is a “big problem” and will cooperate closely with the US to maintain order in the foreign exchange market

The Zhitong Finance App learned that Japan's Finance Minister Katayama Satsuki said that the weak yen is still an issue that continues to receive attention, and Japan and the US will continue to maintain close ties to seek to maintain the orderly operation of the foreign exchange market. Katayama said on Tuesday, “As Sanae Takaichi said during the recent Japan-US summit in New York, I think, in general, the undervaluation of the yen is a problem. We will continue to maintain close communication between the Japanese and US financial authorities and strive to maintain the orderly operation of the foreign exchange market.”

Katayama Satsuki made the above remarks after talking on the phone with US Treasury Secretary Bezent last Friday evening. During the call, the two officials reiterated their shared concerns about the yen being undervalued and agreed to further strengthen cooperation. Katayama Satsuki said that during the call, she told Beisent that Japanese Prime Minister Sanae Takaichi was not an inflationist anymore. This statement is clearly aimed at assuring Bezent that the Japanese prime minister is not seeking an expansionary policy without restraint.

The yen continues to weaken even though the Bank of Japan raised the policy interest rate to its highest level in 31 years earlier this month. The policy signals later released by the Bank of Japan, combined with market bets on further interest rate hikes by the Federal Reserve continued to heat up, fueled market speculation that the Japan-US rate gap might widen, thus putting pressure on the yen once again.

The Japanese authorities have interfered in the foreign exchange market several times this year to support the yen — the first time they intervened during the spring Golden Week holiday, and again in the summer, raising Japan's foreign exchange intervention expenses to a record level this year. In July of this year, Japan and the US also launched their first joint intervention in 28 years to buy yen.

Katayama Satsuki's latest statement shows that the Japanese authorities are still wary of the risk of the yen falling again. Japan's top monetary affairs official Jun Mimura said on Monday that the market should take seriously the “very clear” message issued by Tokyo and Washington last week about the yen. Referring to the recent depreciation of the yen in an interview, Jun Mimura said, “The Japanese Prime Minister, the Minister of Finance, and the US have sent a very clear message. The market should take this information honestly.” He also said, “I will be watching closely to see if the market continues to take this information seriously.”

Strategists believe that given the continued depreciation of the yen after the Bank of Japan's September 18 policy meeting, 1 US dollar against 160 yen has once again become a level that tests Japan's weak tolerance for the yen. However, the growing threat of intervention may itself dampen the yen's decline. However, whether intervention can bring about a lasting reversal may depend largely on whether the US is involved, because historically, when monetary policy fundamentals remain unfavorable, it is often difficult for Japan's unilateral operations to have a lasting impact.

Furthermore, on the issue of rising government bond yields, Katayama Satsuki said that she will maintain close communication with market participants while monitoring relevant developments with a high sense of urgency. The yield on Japan's benchmark 10-year treasury bonds has been hovering around 3%, and the global bond market is currently experiencing sell-off.

Katayama Satsuki said that from a global perspective, the increase in Japanese treasury bond yields does not seem particularly significant. She mentioned her discussions last week with billionaire investor Stanley Druckenmiller and J.P. Morgan CEO Jamie Dimon.

Katayama Satsuki said that the two pointed out that global inflationary pressure is rising, including pressure from rising oil prices and other commodity prices. At the same time, countries are also showing an upward trend in government spending in order to cope with these pressures.

Katayama Satsuki said the two also noticed that hyperscalers (hyperscalers) — that is, companies that operate computing services on a very large scale — are raising large amounts of capital in the corporate bond market. Katayama said that it is traditionally thought that government borrowing will crowd out private sector financing, but this situation may be increasingly being reversed, that is, large-scale issuance of bonds by enterprises is putting upward pressure on government bond yields.

Katayama Satsuki said, “They told me that compared to that, the increase in Japan's yield was not particularly significant. They look at this situation calmly, and believe that in the end, yields in Japan, the US, and Europe all increased, and I also hold this more cautious view.”