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In a Trumpian world, Japan may have little choice but to accept a stronger yen
- Japan’s Ministry of Finance is unlikely to act to prevent a rise in the yen at a time when US President Donald Trump is accusing other countries of currency manipulation and complaining about Tokyo’s unfair relationship with Washington
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Policymakers in Japan won’t welcome the prospect, but currency markets may be on the cusp of delivering a materially stronger Japanese yen. While such a move would only further complicate Japan’s efforts to kindle inflation, there’s precious little that Tokyo could do to obstruct the rise of the yen.
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Admittedly, Masatsugu Asakawa, who until last Friday was vice finance minister for international affairs at Japan’s Ministry of Finance, said last month that “if exchange rates are moving rapidly in a way that cannot be explained by economic fundamentals, Japan has no choice but to voice concern”.
But whether Asakawa’s successor as Japan’s top currency diplomat, Yoshiki Takeuchi, holds similar views remains to be seen. Either way, such rhetoric is hardly going to send chills down the spines of foreign-exchange traders. The currency markets will be acutely aware both of Japan’s lack of room for manoeuvre in this regard and of developments elsewhere that might encourage the yen’s value to move from its current level.
First, unlike on many previous occasions, the idea that Japan’s finance ministry could choose to intervene in the currency markets to stem yen appreciation it deems unacceptable is highly unlikely under current circumstances.
Already, US President Donald Trump has taken to Twitter to accuse China and Europe of playing a “big currency manipulation game”.
His Twitter account would probably go into meltdown if he were to see Japan intervening to stop the yen rising against the dollar, especially when the White House already thinks the US’ trade relationship with Japan is skewed towards Tokyo.
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