Battle to Defend the Yen Escalates! Japanese Finance Minister Warns of Action at Any Time, Maintains Contact with US During Holiday
On Friday (July 3), Japan once again issued a warning to the foreign exchange market. Japanese Finance Minister Kaori Katayama stated that Tokyo is maintaining regular contact with Washington on foreign exchange issues and, even after the yen rebounded from a 40-year low, remains prepared to support the yen if necessary.
The US non-farm payrolls report released on Thursday showed moderate performance, weakening market bets on an imminent Federal Reserve rate hike. As a result, the dollar generally depreciated, giving the yen some breathing room.
When asked about the yen's continued weakness at a regular press conference, Katayama said, "Our stance has not changed at all. We will respond appropriately whenever necessary."
To highlight the government's alertness, Katayama stated that even "when the US is on holiday," Japanese and US authorities continue to maintain close contact on foreign exchange issues.
On Thursday, the yen suddenly surged against the dollar. Traders were wary of possible intervention by Japan and were also nervous about what new methods officials might use to buy yen. However, traders said the fluctuation was too small to indicate that intervention had indeed occurred.
On Friday, the yen was trading near 161.2 to the dollar. Earlier, on Tuesday, it had fallen to 162.84, marking a 40-year low.
Yen Weakness Becomes a Challenge
The yen's prolonged weakness is becoming an increasing challenge for policymakers. Depreciation of the yen drives up the cost of imported raw materials and intensifies pressure on households and businesses. Previously, energy price increases related to the Iran war had already placed pressure on Japanese households and businesses.
This week, new evidence of pressure on Japan's business sector emerged. A report released by the think tank Teikoku Databank showed that in the first half of this year, bankruptcy cases related to yen weakness reached 45, an increase of 32.3% compared to the same period last year.
The report stated: "Yen depreciation has driven up the cost of importing materials and goods, putting particular pressure on wholesalers with limited pricing power." The report added that such bankruptcies may remain high for the foreseeable future.
When asked about the increase in bankruptcies driven by yen depreciation, Katayama stated that the government plans to fully implement relevant measures to revitalize private sector activity.
Rising Policy Tensions
However, increasing fiscal stimulus could come at a high price. Investors remain wary of Prime Minister Sanae Takaichi's spending plans, keeping the bond market unsettled.
Even strong tax revenues have not eased investor concerns. Japan's Ministry of Finance stated that in fiscal year 2025, Japan's tax revenue would reach 84.2 trillion yen, approximately $523.66 billion, exceeding government forecasts by 3.5 trillion yen and setting a record for the sixth consecutive year.
Still, on Friday, Japan's benchmark 10-year government bond yield hit a 30-year high. Investors believe Takaichi's economic blueprint will trigger large-scale additional spending and send signals resisting further rate hikes by the Bank of Japan.
This economic blueprint emphasizes that the government believes close coordination with the central bank is crucial, and it calls it "very important" that the Bank of Japan aligns policy decisions with efforts to strengthen the economy.
Katayama refuted suggestions of a policy shift, stating that the blueprint merely reiterates what "the government has always said." She added that the government remains committed to maintaining market confidence in Japan's fiscal health.
However, as the yen and Japanese government bonds come under pressure, signs of unrest are beginning to emerge within the government. A member of the government panel, viewed as a dovish economic advisor to the Prime Minister, has called for the Bank of Japan to moderately raise rates.
Economist Toshihiro Nagahama said on Thursday: "A moderate rate hike by the Bank of Japan is very important for correcting yen over-weakness and curbing unwelcome bond yield surges." Nagahama had previously been considered a supporter of loose fiscal and monetary policy.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Wall Street giants collectively raise rate hike forecasts, US Treasury futures continue to fall, gold drops over 1% to break 4000
After the US October CPI exceeded expectations, Goldman Sachs and Nomura added a forecast for an interest rate hike in March next year, while Deutsche Bank included a forecast for a rate hike in January next year. Currently, the market has fully priced in a 25 basis point rate hike in December, with a 13% probability for a 50 basis point hike. On Wednesday, the US Treasury spot market was closed, but Treasury futures continued to fall, with corresponding yields rising by about 2 to 4 basis points, and spot gold came under pressure, dropping by 1.1%.
No Need to Worry About the Cooling Down of AI Data Center Construction? The US Import Boom Is Unlikely to Subside in the Short Term, Real Impact May Come in 2029
It takes an average of 4.8 years from finalizing investment to starting construction of a data center project, and an additional 2.6 years from construction start to becoming operational. Servers usually cannot be installed until after the building structure and racks are completed. For trade partners such as Taiwan (China), South Korea, and Mexico who rely on US data center supply chain demand, the inertia in construction timelines provides at least a one- to two-year buffer for future exports.
Federal Reserve Major Debate: When Should the Tenure of “Number Three” Williams End?
The main point of contention is whether Williams should step down in June 2028, upon completing a full 10-year term, or in June 2027, when he reaches the mandatory retirement age of 65. Analysts point out that the Federal Reserve Board holds ultimate discretion; if he leaves early, Fed Chair Waller would be able to assert greater control over the appointment to this critical position. However, forcing Williams to shorten his term could easily be interpreted as political manipulation. Williams himself is expected to serve until June 2028.
Crypto prices
More
