Trump's ascension to power intensifies uncertainty as Japan's top currency officials quickly strengthen verbal intervention

According to the Zhitong Finance APP, Jun Mimura, Japan's top foreign exchange official, stated on Tuesday that Japan is closely monitoring market positions, including those based on speculative bets, as exchange rate fluctuations are undesirable.

At an event, Jun Mimura mentioned that the uncertainty surrounding the economic policies of the new U.S. President Trump could affect the market in unpredictable ways, highlighting the difficulty of predicting whether the dollar will continue its general upward trend.

Jun Mimura indicated that authorities are more concerned about volatility rather than the level of the yen when guiding exchange rate policy.

"We are certainly monitoring daily speculative positions, as excessive volatility or disorderly exchange rate movements are undesirable, as stated in the G7 exchange rate agreement," added Jun Mimura, Deputy Minister of Finance for International Affairs.

When asked about the Bank of Japan's policy meeting this week, Jun Mimura stated that the government and the central bank are closely communicating through various channels every day.

"I have been conveying my views to them. The Bank of Japan may also be gathering various information, including market and annual wage negotiations," Jun Mimura said.

According to informed sources, unless Trump causes any shock to the market, the Bank of Japan is expected to raise interest rates on Friday, which would bring short-term borrowing costs to their highest level since the 2008 global financial crisis.

On Tuesday, after Trump hinted that the U.S. might impose tariffs on Canada and Mexico in the near future, the dollar regained some ground overnight. The dollar fell below 155 against the yen at one point, hitting a nearly one-month low, and as of the time of writing, the dollar to yen exchange rate was 1 dollar to 155.60 yen.

The weakness of the yen has been a headache for Japanese policymakers, as it raises import costs, dampens consumption, and accelerates inflation.

Some analysts attribute the yen's weakness to the Bank of Japan's ultra-low interest rates and slow pace of rate hikes.

Jun Mimura emphasized the need to support consumption by turning real wages positive.

He stated, "The outlook for real wages is very important. From our perspective, the weakness of the yen will push up inflation by increasing import costs."

Changing the G7 Exchange Rate Agreement

Additionally, Jun Mimura stated that he has not heard of any country calling for a change to the G7 developed economies' long-standing commitment to warn against excessive exchange rate fluctuations and disorderly movements.

"In fact, the G7 has reaffirmed this commitment at every meeting, which was initially reached during Trump's first administration in 2017," he said.

Jun Mimura referred to the agreement reached by G7 finance leaders in May 2017, which reaffirmed that "excessive volatility and disorderly movements in exchange rates can have adverse effects on economic and financial stability."

Japan has been calling for the G7 to reaffirm this commitment, as doing so would empower Japan to intervene in the foreign exchange market to address rapid fluctuations in the yen.

On Monday, Trump did not immediately implement the promised tariffs but directed federal agencies to "investigate and correct" the ongoing trade deficit in the U.S., as well as unfair trade practices and currency manipulation by other countries.

Japan's export-dependent economy is vulnerable to any damage to global trade from high tariffs. Although the International Monetary Fund (IMF) raised its forecast for global economic growth in 2025 last week, it warned countries against taking unilateral measures such as tariffs, non-tariff barriers, or subsidies, which could harm trading partners and provoke retaliation Mitsumura Jun stated that it is important to distinguish between protectionist policies that cause division and measures implemented by many countries as industrial policy.

He pointed out that tariffs have several different purposes, such as serving as a bargaining tool in negotiations with other countries, reducing trade deficits, or increasing tax revenue.

Mitsumura Jun said that Japan must carefully examine the motives behind Trump's anticipated tariffs to determine how to respond best. "You need to look at the details of the Trump administration's tariff plan. This is not a 'one-shot' or 'either-or' decision," he said