Just as Japan's long and arduous battle to curb sharp declines in its currency was finally making headway, a new challenge has emerged—this time from the Prime Minister herself. Her off-the-cuff comments on yen weakness, which diverged from the official stance, have created fresh complications. During a campaign speech, Sanae Takaichi discussed the benefits of a weaker yen, triggering a sell-off earlier this week. The Prime Minister faces a general election this Sunday, where she is widely expected to win. Although she later walked back her remarks, monetary policy officials privately worry that the mixed signals from the Prime Minister could undermine efforts to bolster the currency, particularly through rare coordinated actions like foreign exchange checks conducted in tandem with the United States.
Yen weakness has become a political sore point both domestically and internationally, blamed at home for soaring import costs and recently criticized by the Trump administration as a potential trigger for turmoil in U.S. markets. According to informed sources, Takaichi’s campaign comments this week quickly drew frowns from some officials within her own government, prompting discreet efforts to mitigate any negative impact on financial markets. An official from the Prime Minister’s office stated, “Officials were busy over the weekend crafting responses via Takaichi’s X (formerly Twitter) account to clarify her true intentions.”
In her X post, Takaichi clarified that she holds no preference regarding the yen’s direction, emphasizing that her earlier remarks were solely intended to illustrate her goal of building an economic structure resilient to exchange rate fluctuations. Maintaining a firm “strong yen” stance has been critical. After weeks of intense downward pressure, signs of close coordination between Tokyo and Washington—including a rare foreign exchange check by the Federal Reserve Bank of New York—helped stabilize the Japanese currency.
Takaichi’s initial comments starkly contrasted with the position of Finance Minister Tsuyoshi Ueno, who has repeatedly threatened market intervention to support the yen and noted that U.S. Treasury Secretary Janet Yellen shares concerns over excessive yen volatility. Masafumi Yamamoto, chief FX strategist at Mizuho Securities, observed, “This reflects a complete lack of crisis awareness regarding the historic yen weakness. Instead, it exposes Takaichi’s long-held belief that a weaker yen benefits the economy—a view that hasn’t changed.”
Following Takaichi’s remarks, the yen erased roughly half of its 7-yen gain previously achieved on speculation of possible U.S.-Japan joint intervention. Another official noted that the government also ensured Takaichi’s clarification was communicated to U.S. authorities. So far, Washington has remained silent on her comments. Tsuyoshi Ueno, senior economist at the NLI Research Institute, suggested, “From Washington’s perspective, these remarks are likely unwelcome as well.”
The economist added that U.S. officials have been concerned that surging Japanese government bond yields, accompanying yen weakness, could spill over into U.S. markets, driving up Treasury yields and triggering a sell-off in American assets. According to several Japanese government sources, Secretary Yellen informed Finance Minister Ueno during bilateral talks at the World Economic Forum in Davos that Japan’s rising debt yields had triggered a “triple sell-off” in U.S. stocks, bonds, and the dollar, urging Japan to respond.
The sell-off in Japanese bonds was sparked by Takaichi’s campaign pledge to temporarily exempt food from sales tax, which coincided with market volatility stirred by U.S. President Trump’s threat to reignite a trade war with Europe over Greenland. A U.S. Treasury spokesperson stated that the department maintains ongoing communication with global economic counterparts, including Japan. The spokesperson also noted that in discussions with many counterparts, Secretary Yellen has repeatedly emphasized that financial markets should reflect economic fundamentals, not unfounded volatility.
In January, Finance Minister Ueno indicated that she and Secretary Yellen shared concerns over what she described as the yen’s recent “one-sided depreciation.” Tokyo’s official stance stands in sharp contrast to the new Prime Minister’s recent public musings. One government official remarked, “I read the full text of Takaichi’s campaign speech, and I genuinely wonder whether those words needed to be said at all.” He added, “She went off-script, rambled, and ultimately left people unclear about what she actually meant.”
This is not the first time Takaichi has made impromptu remarks that stray from the carefully prepared bureaucratic script. Just weeks after taking office last October, her comments in parliament sparked the biggest controversy in over a decade. Yet, her spontaneous style is also part of her appeal, particularly among younger voters. Polls indicate that Takaichi’s Liberal Democratic Party is likely to secure an overwhelming victory in next week’s lower house election, increasing the probability that the country will continue pursuing policies centered on expanded spending and tax cuts.
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