(Nov 5): Recent moves by the yen are deviating from what might be expected given interest rate differentials between Japan and the US, Japan’s top currency official said on Wednesday.
“Basically we always say you should look at interest rate differentials between yen and US dollars or US treasury bonds and JGBs [Japanese Government Bonds],” and the currency pair should move in line with the gap, Atsushi Mimura, Vice Finance Minister for International Affairs, said. “If you look at the actual movement of foreign exchange and the movements of differentials between US and Japan interest rates on public bonds, you do see some sort of deviation recently, I would say.”
The yen touched an eight-month low of ¥154.48 against the dollar on Tuesday after the Bank of Japan (BOJ) left interest rates unchanged last week. While governor Kazuo Ueda offered subtle hints that a rate hike might be coming nearer, markets appeared unconvinced, sending the yen lower. The yen, which was trading little changed before Mimura spoke, jumped about 0.1% to around ¥153.45 after he commented on the currency.
Mimura noted that there’s 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.
“Probably in recent weeks, there’s some prospect or speculation about forthcoming fiscal policy in this country, but of course this is only part of the whole story,” he said.
Mimura emphasized that authorities don’t have a specific number in mind for what represents an excessive move, but “if we see this fluctuation in volatility isn’t necessarily explained by any sort of fundamental-related reasons” then we’d say it’s a bit disorderly or excessive. His comments are in line with Finance Minister Satsuki Katayama’s recent remarks warning the market about excessive moves.
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Asked about US Treasury Secretary Scott Bessent’s recent remarks related to the Bank of Japan, Mimura reiterated standard practice that monetary policy is in the hands of the BOJ. Bessent said before the latest BOJ decision that Japan’s government should give the central bank space to adjust policy to fight inflation. He said Bessent agrees that the BOJ is independent.
Regarding trade, Mimura said the recent deal agreed with the US probably had the best terms “that we could do, realistically”. Mimura was a key member of Japan’s negotiation team led by Economic Minister Ryosei Akazawa.
He noted that Japan escaped having to lower its own tariffs, because doing so would require parliamentary approval. With a minority government in power, Japanese authorities explained to their counterparts that this wouldn’t be realistic.
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“We said, we will not lower our tariffs,” he said.
In return for lower tariffs, Japan pledged to invest up to US$550 billion in key US sectors. The two governments released a joint fact sheet during Donald Trump’s recent visit to Japan that outlined potential projects in energy, artificial intelligence and critical minerals under the vehicle. The projects may involve firms including SoftBank Group and Westinghouse.
Mimura said the investment programme will benefit Japanese companies.
Prime Minister Sanae Takaichi aims to strengthen the screening of foreign direct investment. The premier urged Katayama to create a Japanese version of the US’s Committee on Foreign Investment, or CFIUS, an inter-agency group led by the Treasury secretary that reviews whether investments from overseas may carry risks such as the potential exposure of military secrets or leaks of sensitive technologies.
Japan’s move to create its own CFIUS-style framework would highlight growing pressure on the government to protect domestic companies amid concerns that China may seek control of key technologies and real estate assets. While Tokyo continues to court foreign investors by pushing companies to boost shareholder returns, that drive is tempered by the need to bolster national security as geopolitical tensions flare.
“We are always welcoming sound foreign direct investment,” Mimura said, “but at the same time we should make sure we can make good screening, well-targeted, efficient so that we can somehow deal with geopolitical risks.”
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