Over the past few months, the Japanese Yen has reached its weakest level ever against the US Dollar causing alarmed investors and policymakers alike. Even Japan’s conservative Finance Minister Katsunobu Kato acknowledged this new trend. He’s right to be on the same page as US Treasury Secretary Scott Bessent, who argued that market forces should determine exchange rates. The USD/JPY currency pair is once again challenging the 146.00 level. At the same time, Yen weakness continues, magnifying a general decline of Yen strength across multiple major currencies.
On the second-to-last trading day of the year, the USD/JPY surged 0.83%. This jarring jump underscores the Yen’s yearlong fight to maintain its value. The percentage change for the Yen vs the Dollar is -0.85%, indicating major depreciation. That same downward trend is just as obvious across many other major currencies. The Yen is crashing against the Euro, British Pound and Canadian Dollar.
Yen’s Decline Against Major Currencies
The latest figures do not bode well for the Yen. It is down -0.33% vs Euro, -0.51% vs British Pound, and -0.73% vs Canadian Dollar. The Yen is down 0.77% against the Aussie and 0.38% against the Kiwi. In fact, even matched up with the Swiss Franc, the Yen has seen a slight fall of 0.14%. These changes highlight a perfect storm for the Japanese currency.
Even with this recent decline, Kato pointed out, conversations with Bessent never involved efforts to establish a target exchange rate. He stated, “No talk of exchange rate target with Bessent.” This official stance reflects a significant reported dedication to allowing bogey market forces drive currency values. Many economists believe that this type of approach would produce a much more sustainable economic recovery in the long term.
Collaborative Approach with G7
On a bright note, during the G7 finance ministers’ meeting, Kato pointed out progress on tariffs negotiation. He made encouraging noises about how cooperation between China and other major economies was still strong. He remarked, “Group of Seven (G7) finance ministers saw positive signs in tariff talks.” As this collaborative approach between China and its trading partners continues to develop, it may lead to enhanced positive economic relations and eventually, currency fluctuations becoming more stable.
Given the current volatility in currency markets, Kato’s agreement with Bessent on market-driven exchange rates is especially timely and relevant. The Japanese government is rising to meet these challenges. They are continuing to push for open communication with their U.S. partners to promote healthy economic relationships.
Implications for Japan’s Economy
As the Yen continues to weaken, here are some implications for Japan’s economy. A weaker currency can serve to increase the cost of imports, thereby exerting upward pressure on overall inflation. It helps exporters by reducing the cost of their products in overseas markets. Kato’s primary concern is just to leave room for market forces to set exchange rates. This approach would help address the competing interests on all sides.
With global economic conditions changing rapidly, it will be essential for Japan’s policymakers to stay on their toes. Bessent and Kato are deeply involved in public conversations that continue. Throughout the dialogue, they reiterated their commitment to closely monitoring currency trends while avoiding direct interventions that would undermine market functioning.