Summary:
Finance Minister Satsuki Katayama said Japan is watching the yen’s slide “with a strong sense of urgency” and is in close communication with the US.
The warning lands as PM Sanae Takaichi pushes a more expansionary fiscal stance that markets see as yen-negative at the margin.
Takaichi has also nominated two dovish-leaning BOJ board candidates, prompting fresh concern about policy direction and BOJ independence.
On the other side, BOJ hawk Hajime Takata renewed his call for gradual rate hikes amid “inflation overshoot” risks.
Tokyo CPI cooled but the key underlying gauge firmed, broadly consistent with BOJ’s “temporary slowdown” narrative.
Japan’s Finance Minister Satsuki Katayama signalled heightened vigilance over the yen on Friday, telling parliament the government is monitoring the currency’s recent slide “with a strong sense of urgency” and maintaining extremely close communication with the United States. The comments underscore officials’ sensitivity to yen weakness as a cost-of-living issue, particularly via import prices, at a time when politics, fiscal policy and central-bank messaging are pulling in different directions.
The political backdrop is doing the yen no favours. Prime Minister Sanae Takaichi, fresh off a strong election mandate, has pitched a shift away from fiscal austerity, including multi-year investment plans and tax-relief proposals aimed at lifting growth. While framed as pro-growth, the agenda has revived concerns about Japan’s already heavy debt load, and, by extension, higher term premia and a weaker currency if investors demand more compensation to hold JGBs.
Monetary policy has become the other flashpoint. Takaichi has been reported as wary of additional BOJ rate hikes, and her government’s nomination of two likely dovish-leaning academics to the BOJ policy board was read by markets as an attempt to tilt the debate toward a slower normalisation path. The yen weakened on the news.
Yet the BOJ’s internal messaging remains split rather than uniformly dovish. Board member Hajime Takata, widely seen as one of the most hawkish voices, reiterated that policymakers should stay alert to inflation overshoot risks and continue gradual hikes. Meanwhile, Tokyo’s February inflation data delivered a mixed signal: core inflation (ex fresh food) slipped to 1.8% but the “core-core” gauge (ex fresh food and energy) ticked up to 2.5%, broadly consistent with the BOJ’s view that any slowdown is temporary due to subsidies and base effects.
The upshot for markets is a familiar tension: officials talk tougher on FX as the yen weakens, while domestic politics leans toward easier financial conditions and the BOJ debates how quickly to tighten. That combination keeps intervention rhetoric alive, but also keeps the yen sensitive to swings in US yields and shifting expectations around the next BOJ move.
