Japan's Katayama flags yen weakness as problematic, echoes Bessent on joint effort

The main takeaway centers on the yen. Katayama's comment that a cheap yen poses problems, along with her pledge to maintain close ties with the US Treasury, escalates rhetoric around USD/JPY (near 157 in recent trade) following the joint intervention in August. Her denial that the government is pursuing reflationary policies and her focus on market-determined rates may provide minor backing for the yen and JGB confidence, but without any specific level or action cited, traders are expected to keep testing officials' resolve.

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Katayama stuck to the standard language of partnership and dialogue, yet her assertion that an undervalued yen creates difficulties sustains the pressure on USD/JPY.

Summary

• Katayama confirmed that Japan and the US reached a consensus to enhance collaboration, as she was asked about her phone call with Treasury Secretary Bessent on September 25.
• She stated that Japan will sustain close dialogue with the US Treasury to support orderly foreign exchange markets.
• She described an undervalued yen as generally troublesome.
• She noted that Prime Minister Takaichi's administration is not reflationary and that market forces set interest rates.
• She indicated that the ministry will interact closely with bond market participants and carry out suitable debt management policies.
• She added that it will maintain thorough engagement with market players while staying highly alert.

Finance Minister Satsuki Katayama of Japan stated that Tokyo and Washington concurred to increase cooperation, as she responded to queries about her September 25 telephone discussion with US Treasury Secretary Scott Bessent. She assured that Japan will maintain consistent contact with the US Treasury to promote orderly foreign exchange markets.

Katayama also shared her perspective on the yen. She remarked that an undervalued yen, broadly speaking, is problematic. This remark follows the September 25 call during which Bessent indicated a preference for a strong yen that mirrors Japan's economic conditions, as per a record of the discussion. It also comes after the confirmed joint US-Japan yen intervention in early August.

Regarding policy, she dismissed the notion that Prime Minister Sanae Takaichi's government is reflationary. She also stated that markets decide interest rates. For context, a reflationary stance typically involves measures to boost growth and prices via stimulus, and markets have frequently associated it with a softer currency and elevated bond yields, explaining why the denial is significant for yen observers.

On the bond market front, Katayama noted that the ministry will engage closely with participants and implement appropriate debt management policies. She also mentioned that the ministry will remain in close contact with market participants while preserving a strong sense of urgency. Similarly, the phrase "orderly" markets is the customary official wording for signaling that authorities are concerned with the pace of a move rather than a precise level.

These comments reinforce a message that Japanese officials have frequently conveyed: that they are monitoring the currency closely and working in coordination with Washington. USD/JPY was trading around 157 in recent sessions, drifting back towards 158 after slipping below 157 late last week, based on one market report.

Katayama did not specify any level or announce any measures, and her language remained within the established framework of communication and coordination. Traders will monitor whether the tone becomes more stringent if the yen weakens further, and whether any additional contact with the US Treasury occurs.