Despite being named a currency watchlist country…Takaichi: "A weaker yen has advantages"

Takaichi highlights the benefits of yen weakness on the campaign trail

"A major opportunity for export industries"

U.S. again designates Japan as a currency watchlist country

Weaker yen attributed to "the new government’s expansionary fiscal policy"

With the United States designating Japan as a currency watchlist country, Japanese Prime Minister Sanae Takaichi underscored the advantages of a weaker yen.

According to the Nihon Keizai Shimbun and other outlets on the 1st, Takaichi said in a street speech in Kawasaki, Kanagawa Prefecture, the previous day: “People say a weak yen is bad, but it’s a major opportunity for export industries,” adding that “even the management of the Foreign Exchange Fund Special Account is all smiles.” The Foreign Exchange Fund Special Account is an account through which Japan’s Ministry of Finance manages funds for market intervention when exchange rates swing sharply.

She noted that the yen had been strong under past Democratic Party administrations and said, “I don’t know whether a strong yen is good or a weak yen is good,” adding, “If the yen is strong, you have no competitiveness even if you export.” She did not mention drawbacks such as higher import prices stemming from yen weakness.

Since Takaichi took office last year, the yen has depreciated as the yen–dollar exchange rate rose, and her aggressive fiscal stance has been cited as a key factor. Yoshihiko Noda, co-leader of the centrist Reform Alliance, criticized her at a campaign event in Saitama Prefecture the same day, saying, “A weaker yen will push import prices up further, but they’re doing nothing.”

In response, Takaichi wrote on X that Japanese media appeared to have misunderstood her remarks the day before, saying, “This is not about which is better or worse, a weak yen or a strong yen.” She added that she meant she wanted to “build an economic structure that is resilient to exchange-rate fluctuations,” and said she “did not emphasize the benefits of a weak yen.”

The U.S. government on the 29th (local time) again designated Japan as a currency watchlist country. In its semiannual report titled “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States,” the U.S. Treasury said careful attention is needed regarding currency practices and macroeconomic policies, adding 10 countries—including South Korea, China and Japan—to the watchlist.

In this report, language that had called on the Bank of Japan to tighten monetary policy was removed. The previous semiannual report included wording stating that “the Bank of Japan should continue monetary tightening,” adding that it would “support normalization of the yen’s weakness against the dollar and a structural rebalancing of bilateral trade,” but that wording was omitted this time.

Instead, it newly cited “the new government’s expansionary fiscal policy” as a factor behind Japan’s weaker yen. Nikkei said, “Treasury Secretary Scott Bessent has demanded that the Bank of Japan raise interest rates to correct the yen’s weakness, but the situation is changing.” A U.S. Treasury official told Nikkei, “Six months ago, (monetary policy) was considered the issue, but the focus is shifting to other factors.”

The Yomiuri Shimbun pointed out that “as the Bank of Japan raises interest rates step by step, the yen’s weakening trend against the dollar has become pronounced since the launch of the Takaichi government, suggesting the U.S. government is focusing more on fiscal policy than on Japan’s monetary policy.”

Tokyo=Kim Il-gyu, Correspondent black0419@hankyung.com