Japan's Finance Minister Katayama: Trump Expresses Concerns Over Yen Depreciation
Japan's Finance Minister Katsuyuki Katayama stated at a press conference after a cabinet meeting that U.S. President Trump expressed concerns about the weakening yen during a meeting with Prime Minister Fumio Kishida at the United Nations General Assembly this week. Kishida responded that, as a general principle, the undervaluation of the yen is a problem. Katayama indicated that this disclosure was made after consulting the Prime Minister's Office, and that the meeting did not discuss monetary or fiscal policy, with Kishida's government economic policy remaining unchanged.
Katayama emphasized that he will continue to communicate closely with U.S. Treasury Secretary Janet Yellen on topics including foreign exchange. Yellen later stated that the two sides discussed the desirability of a strong yen reflecting Japan's robust fundamentals. The Ministry of Finance confirmed that both sides reiterated concerns about the yen's undervaluation and will strengthen cooperation. Following this statement, the yen strengthened, with the USD/JPY falling from around 158.60 to about 157, and during the session, it touched 156.98, appreciating by about 1% in a single day.
Katayama stressed that specific monetary policy tools are decided by the Bank of Japan, which should implement appropriate policies while communicating with the government, and stated that the government will not hesitate to take bold actions. From July to August, Japan and the U.S. coordinated to buy yen, with the Ministry of Finance data showing an intervention scale of about 15.4 trillion yen that month; the yen subsequently rebounded from around 164, but this week fell back to around 160 amid strong U.S. data and rising U.S. Treasury yields.
The market views this as a verbal intervention and coordination signal rather than an immediate entry. The U.S.-Japan interest rate differential and the Federal Reserve's rate path continue to dominate pricing: the yield on the U.S. 10-year Treasury remains at multi-year highs, while domestic fiscal expansion and bond supply in Japan have pushed up long-term rates, but the interest rate differential structure has not reversed the carry trade direction. Katayama declined to comment on whether the summit discussed global bond yields.
In market mechanics, sellers are increasing short positions on the yen above 160 through carry and trend accounts; buyers are short-term positions betting on renewed joint intervention by Japan and the U.S. Funds are shifting from yen short positions to dollar short and yen long positions, with options volatility repricing for intervention tails. Beneficiaries are Japanese households and importers holding unhedged dollar assets, needing yen appreciation to reduce import inflation; pressured are companies relying on weak yen export profits and inbound consumption, as well as global carry trades financed by interest rate differentials. The verbal aspect rewrites intervention options into prices but does not change the constraint of U.S. Treasury yields on the yen discount rate.
Source: Public information
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Katayama's public disclosure of the exchange rate dialogue during the leaders' meeting itself serves as an intervention tool. Kishida and Trump only discussed "undervaluation is a problem" in New York, removing fiscal policy and central bank rate hikes from the negotiation table to avoid being interpreted as Washington directly naming the Bank of Japan. Yellen framed the U.S. demand as beneficial to Japan by stating that a strong yen reflects fundamentals, rather than simply protecting U.S. exporters. The nearly $100 billion joint purchase in July has already proven that without U.S. consent, Tokyo's unilateral entry has limited effectiveness.
The capital path is a confrontation between carry trades and official reserves. Japanese households and institutions hold overseas assets long-term, while domestic fiscal expansion raises bond supply, making the yen a financing currency. The U.S. desires a stronger yen to alleviate its export price advantage; Japan seeks to block imported inflation without immediately raising rates significantly. Coordinated intervention uses foreign exchange reserves to buy time, and truly narrowing the interest rate differential still depends on the Federal Reserve's path and whether the Bank of Japan pushes policy rates up a notch. Katayama's "bold actions" leave the next entry rights with the Ministry of Finance and the interest rate authority with the central bank.
A similar structure was seen in the U.S.-Japan exchange rate coordination after the 1998 Asian crisis, and the rapid return of interest differentials after Japan's unilateral intervention in 2022. The current phase is "joint verbal intervention plus selective entry," not a new Plaza Accord. The intervention options can create a rebound around 160; the trend is determined by whether the 10-year U.S. Treasury yield falls from 5%. Kishida's expansionary agenda and strong yen demand position Katayama as a pressure interface from both sides.
Structural judgment belongs to the transfer of pricing power. The short-term pricing power of the yen shifts from the carry trade segment to the coordinated statements of the U.S. and Japan's finance ministers. The mechanism is: when both countries simultaneously state that undervaluation is unacceptable, shorts must pay a higher option premium for being squeezed; if U.S. Treasury yields do not fall, the premium can only increase volatility, not the trend. Intervention changes the convexity of the path, not the sign of the interest rate differential.
ABAB News · Cognitive Law
- When leaders say undervaluation, intervention options re-enter prices.
- Joint entry buys time; interest differentials determine direction.
- Exchange rate negotiations first remove the central bank from the table to form a verbal alliance.