Expectations for Japan-US currency coordination are heating up once again, as the Japanese government responds to the yen's persistent weakness through high-level communication and policy statements.

On September 25, according to Bloomberg, Japanese Finance Minister Satsuki Katayama said that US President Trump expressed concern over the yen's depreciation during his meeting with Japanese Prime Minister Sanae Takaichi this week, while Takaichi responded that the yen's undervaluation is a problem. Katayama said she disclosed some details of the talks after consulting the Prime Minister's Office, and stated that Japan will continue to maintain close communication with US Treasury Secretary Bessent on a range of issues including foreign exchange.

Katayama also said that specific monetary policy tools are decided by the Bank of Japan. The BOJ's recent rate hikes are aimed at achieving its inflation target, and she hopes the BOJ will implement appropriate monetary policy while maintaining communication and coordination with the government. She declined to comment on specific exchange rate levels or whether Japanese authorities conducted rate checks.

Meanwhile, Japan's Minister for Growth Strategy Minoru Kiuchi said that the era of "Abenomics-style" aggressive monetary easing and flexible fiscal policy has ended, and Japan has entered a new phase of gradually rising prices and upward-trending interest rates.

Following the release of the related news, the yen strengthened in the short term. As of press time, the US dollar fell 0.3% against the yen to 158.35.

Exchange rate remarks signal a stabilizing message for the yen

The recent remarks by Katayama and Kiuchi indicate that the Japanese government is sending a signal to the market that it does not want the yen to continue weakening. Kiuchi said Japan is no longer in an "era of monetary easing" and that there is no need to continue pursuing aggressive reflationary policies at this stage.

At the time of the remarks, the yen had been weakening continuously after Japan's long holiday, once again approaching the 160 level that the market is closely watching. Charu Chanana, Chief Investment Strategist at Saxo Markets, said that these statements are currently more verbal intervention, and unless there is subsequent policy coordination, actual intervention, or clearer tightening signals from the BOJ, their impact on the yen's movement may be limited.

Katayama said the meeting reaffirmed the relevant principles in last year's joint statement by the Japanese and US finance ministers, namely that excessive exchange rate volatility is detrimental to the economy and that currency intervention should be a policy option for addressing abnormal fluctuations. She said she consulted the Prime Minister's Office before disclosing some details of the talks, showing that the Japan-US exchange rate issue is relatively sensitive.

The Japan-US interest rate differential remains an important constraint on the yen

The Bank of Japan raised its policy rate to 1.25% on September 18, and Governor Kazuo Ueda subsequently said that another rate hike in October or a larger move at some point in the future cannot be ruled out, but the market reaction was relatively limited.

By contrast, the Federal Reserve's latest rate path still supports the dollar. The dot plot after the Fed meeting shows at least one more rate hike is expected this year, and traders are currently pricing in a 71% probability that the Fed will raise rates again on October 28. The divergence in Japan-US interest rate expectations remains an important factor affecting the yen's movement.

According to reports, after the yen weakened last week, Japanese financial authorities conducted rate checks during New York trading hours, asking several banks for current yen quotes. The market usually views such operations as a signal that Japanese authorities are closely monitoring exchange rate movements. About a year ago, the Japanese and US finance ministers confirmed their exchange rate policy positions through a joint statement, and this direct discussion of exchange rate issues by the Japanese and US leaders has further increased market attention on subsequent policy communication.