The yen staged a sharp rebound after five consecutive trading days of declines.
On Friday, September 25, U.S. Eastern Time, U.S. Treasury Secretary Bessent posted on social media that he had a "productive call" that day with Japanese Finance Minister Katayama Satsuki, during which the two sides discussed "the desirability of a strong yen that reflects Japan's strong economic fundamentals," and emphasized the importance of maintaining close communication on the foreign exchange market.
Bessent's remarks further reinforced the signals recently sent by U.S. and Japanese officials regarding the yen exchange rate.
Bloomberg reported earlier on Friday that Katayama Satsuki revealed that when Trump met with Japanese Prime Minister Takaichi Sanae this week, both sides discussed the issue of yen weakness, and Takaichi also told Trump that, from a general principle standpoint, the yen being undervalued "is problematic."
After the relevant remarks by Japanese officials were reported, the yen's gains widened, with the dollar falling below 157.00 intraday against the yen to 156.94, a daily decline of 1.2%, moving away from the high since September 2 that was refreshed on Thursday when it broke above 159.00 intraday.
U.S. and Japanese Officials Successively Send Signals: From Trump and Takaichi to Bessent and Katayama
Bessent said on Friday that his call with Katayama continued Trump's earlier meeting with Takaichi Sanae this week and reflected "the strength of the U.S.-Japan partnership."
He wrote on social media that the two sides discussed "the desirability of a strong yen that reflects Japan's strong economic fundamentals," while also discussing the importance of maintaining close communication in the foreign exchange market.
Judging from the wording, Bessent did not propose a specific exchange rate target, nor did he announce new foreign exchange intervention measures, but his direct use of the phrase "the desirability of a strong yen" shows that the U.S. Treasury Department's attention to the yen exchange rate is continuing.
Before Bessent's post, Japan had already sent a clearer signal.
Katayama Satsuki said on Friday that when Trump met with Takaichi Sanae in New York this week, he expressed concern about the yen's weakness; Takaichi told Trump that the yen being undervalued was "problematic." Katayama also said that in light of the Japan-U.S. summit meeting, she would continue to maintain close communication with Bessent on a range of issues including foreign exchange.
Bloomberg noted that after Japanese officials successively commented on the yen's weakness, the yen briefly became the strongest performer among G10 currencies, with an intraday gain of 1.2%. This move also reflected that the market has begun to refocus on the tolerance of U.S. and Japanese officials for further yen depreciation.
It is worth noting that currently available public information indicates rising policy communication and intervention risk, rather than another joint intervention by the United States and Japan on Friday. Japan and the United States previously conducted a joint yen-buying intervention at the end of July, and the market is now focused on whether the two countries will take further action if the yen depreciates rapidly again.
Institutions: Intervention Risk May Put a "Ceiling" on the Yen's Decline
Market participants have begun to reassess the room for further yen weakness.
OCBC strategist Moh Siong Sim said that "intervention risk should put a ceiling on further yen weakness"; more importantly, as Trump expresses concern about yen weakness, the yen may be approaching a turning point, because this means deeper coordination between the United States and Japan may emerge to support the yen.
The yen has recently come under pressure partly because the market has again raised expectations for further Federal Reserve rate hikes, and the interest rate differential between the United States and Japan may remain at a high level; on the other hand, the market's judgment on the pace of subsequent Bank of Japan rate hikes has also limited support for the yen.
Bloomberg noted that market participants had previously regarded the area around 160 yen as a zone where the risk of intervention by Japanese authorities clearly rises. Recent sentiment in the yen options market has also turned more bullish, reflecting increased demand from investors to hedge against possible Japanese intervention in the foreign exchange market.
However, different views also exist in the market.
Bloomberg macro strategist Brendan Fagan believes that the latest remarks by Japanese officials have not resolved two key issues: the Bank of Japan's policy is still clearly lagging behind other major central banks, and there is still structural carry trade demand in the market. He believes that the yen's current strength is more a reaction to policy signals, and its sustainability remains to be seen.
Whether the Yen Can Hold Its Ground Still Depends on the U.S.-Japan Rate Differential and Policy Path
The yen's rebound this time occurred against a sensitive backdrop.
During the previous five consecutive trading days of weakness, the dollar once again approached the 160 mark against the yen. Relatively strong U.S. economic data, rising market expectations for further Federal Reserve rate hikes, and persistently high U.S. Treasury yields all put pressure on the yen.
At the same time, the pace of subsequent Bank of Japan rate hikes remains a key focus for the market. Although Japan continues to emphasize exchange rate volatility and the issue of the yen being undervalued, if the U.S.-Japan interest rate differential remains high, it is still uncertain whether verbal intervention alone can sustainably change the exchange rate trend.
Therefore, Friday's sharp rebound in the yen more directly reflected the market's repricing of the policy signal that "both U.S. and Japanese officials do not want excessive yen weakness."
Next, the market will continue to watch three variables: whether Federal Reserve rate expectations continue to push the U.S.-Japan rate differential higher, whether the Bank of Japan further signals faster rate hikes, and whether the "close communication" emphasized by the U.S. and Japanese finance ministers will further translate into concrete exchange rate policy actions.
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