Campaign comments on the weak yen have exposed the political and market tightrope Japan is walking ahead of its snap election.
Summary:
Japan’s prime minister highlighted the benefits of a weak yen during the election campaign, creating tension with official efforts to curb excessive FX moves.
Subsequent clarifications sought to neutralise market reaction, stressing neutrality on currency direction.
Yen weakness remains politically sensitive as it lifts import costs and household inflation ahead of the snap election.
Finance officials continue to warn against disorderly FX moves, keeping intervention risk alive.
Opposition figures seized on the comments as evidence the government is out of touch with cost-of-living pressures.
Japan’s currency policy has become an unexpected flashpoint in the run-up to the February 8 snap election, after Prime Minister Sanae Takaichi publicly highlighted the advantages of a weaker yen before walking back her remarks amid market and political backlash.
Speaking on the campaign trail Saturday, Takaichi framed yen depreciation as beneficial for exporters, arguing that currency weakness has helped cushion the impact of external headwinds, including US trade barriers. The comments stood in contrast to the more guarded tone struck by Japan’s finance ministry, which has repeatedly refused to rule out action to counter excessive foreign exchange volatility.
The yen has been trading near 18-month lows against the US dollar, a move that has supported export competitiveness but also lifted import prices and fuelled domestic inflation. That inflationary pressure has complicated the policy outlook, increasing speculation about further interest rate adjustments by the Bank of Japan while simultaneously heightening political sensitivity around household living costs.
Following scrutiny, Takaichi sought to clarify her position, stressing that she does not favour either a weak or strong currency. Instead, she emphasised the government’s longer-term objective of building an economic structure resilient to exchange-rate swings, underpinned by stronger domestic investment and reduced vulnerability to external shocks. The effort appeared aimed at limiting the risk that campaign rhetoric could be interpreted as tacit approval of further yen weakness.
Currency markets have been especially alert after the yen briefly strengthened on reports that the New York Federal Reserve had contacted banks the previous week ( sharp yen gains late Friday after market chatter of a Federal Reserve rate check) regarding yen pricing, a step often seen by traders as a prelude to coordinated intervention. Japan’s finance minister Satsuki Katayama has consistently warned that authorities stand ready to act if currency moves become excessive or disorderly.
Opposition figures were quick to criticise the prime minister’s initial remarks. Yoshihiko Noda, now a co-leader of the largest opposition bloc, argued that prolonged yen weakness erodes household purchasing power and risks alienating voters already grappling with rising costs.
Beyond the election, investors remain uneasy about Japan’s fiscal position. The yen’s prolonged slide has coincided with a surge in long-dated government bond yields to record highs, reflecting concerns over debt sustainability as the government continues efforts to reflate the economy. The episode underscores how finely balanced Japan’s currency messaging has become, where even campaign remarks can reverberate through markets.
