After Japanese Official’s Statement, Besant Steps In: “Merit of Strong Yen” Already Discussed with Japan’s Finance Minister

The yen saw a strong rebound after five consecutive days of declines.

On Friday, September 25, Eastern Time, U.S. Treasury Secretary Besent posted on social media that he had a "productive call" with Japanese Finance Minister Katsuyama Satsuki earlier that day. The two discussed "the desirability of a strong yen that reflects Japan's robust economic fundamentals," and emphasized the importance of maintaining close communication on the foreign exchange market.

Besent's statement further reinforced the signals recently released by U.S. and Japanese officials regarding the yen's exchange rate.

Earlier on Friday, Bloomberg reported that Katsuyama Satsuki disclosed that when Trump met with Japanese Prime Minister Takamichi Sanae this week, both discussed the issue of the weak yen. Takamichi also told Trump that, in general terms, the yen being undervalued is "problematic."

After the above statements from Japanese officials, the yen's gains expanded. The U.S. dollar against the yen fell below 157.00 intraday, hitting 156.94, a drop of as much as 1.2% for the day, pulling back from Thursday's 159.00 high—the highest since September 2.

U.S. and Japanese Officials Send Consecutive Signals: From Trump and Takamichi to Besent and Katsuyama

Besent said on Friday that his call with Katsuyama continued the discussion between Trump and Takamichi Sanae earlier in the week and demonstrated "the strength of the U.S.-Japan partnership."

He wrote on social media that the two discussed "the desirability of a strong yen that reflects Japan's robust economic fundamentals," as well as the importance of maintaining close communication in the forex market.

Judging from the wording, Besent did not specify a particular exchange rate target nor announce new foreign exchange intervention measures. However, his direct use of the phrase "the desirability of a strong yen" shows that the U.S. Treasury's attention to the yen's exchange rate remains ongoing.

Prior to Besent's statement, the Japanese side had already sent out much more explicit signals.

Katsuyama Satsuki said on Friday that Trump, when meeting with Takamichi Sanae in New York this week, expressed concern about the yen's weakness; Takamichi told Trump that the undervaluation of the yen is "problematic." Katsuyama also said that, given this U.S.-Japan summit meeting, she would continue to maintain close communication on a range of issues, including foreign exchange, with Besent.

Bloomberg pointed out that after a series of comments from Japanese officials on the yen's weakness, the yen briefly became the strongest performer among the G10 currencies, with an intraday gain of up to 1.2%. This trend also reflects the market's renewed focus on how much further U.S. and Japanese officials will tolerate depreciation of the yen.

It is worth noting that, current public information only shows an increase in policy communication and intervention risk, rather than a renewed joint intervention by the U.S. and Japan on Friday. The U.S. and Japan had previously carried out a joint yen-buying intervention at the end of July. The market is now watching closely: if the yen depreciates rapidly again, will the U.S. and Japan take further action?

Institutions: Intervention Risk May "Cap" the Yen's Downtrend

Market participants are beginning to reassess the room for further yen weakness.

According to OCBC strategist Moh Siong Sim, "Intervention risk should put a cap on further yen weakness." More importantly, as Trump voices concerns about the yen’s decline, the yen may be approaching a turning point, as this suggests the possibility of deeper U.S.-Japan coordination to support the yen.

The yen has recently been under pressure partly because the market has raised expectations for further Fed rate hikes, which may keep the U.S.-Japan interest rate differential high; on the other hand, market expectations for the speed of future Bank of Japan rate hikes have also limited yen support.

Bloomberg pointed out that market participants had already regarded the 160-yen level as an area where intervention risk significantly increases for Japanese authorities. In recent days, sentiment in the yen options market has also turned more bullish, reflecting growing demand from investors to hedge against possible Japanese intervention in the forex market.

However, there are also different views in the market.

Bloomberg macro strategist Brendan Fagan believes that the latest comments from Japanese officials have not addressed two key issues: the Bank of Japan's policy remains significantly behind other major central banks, and there is still structural demand for carry trades in the market. He thinks the yen's current strength is more a reaction to policy signals, and how long this strength will last remains to be seen.

Whether the Yen Can Hold Its Ground Still Depends on U.S.-Japan Rate Differentials and Policy Paths

The yen's rebound comes at a sensitive moment.

During the preceding five days of weakness, the U.S. dollar against the yen had come close to the 160 mark. Stronger-than-expected U.S. economic data, rising expectations for further Fed rate hikes, and persistently rising U.S. Treasury yields have all put pressure on the yen.

Meanwhile, the pace of future Bank of Japan rate hikes remains a key focus for the market. Although Japanese officials continue to highlight volatility and yen undervaluation, if the U.S.-Japan rate differential remains high, it is uncertain whether verbal intervention alone can sustainably influence the exchange rate.

Thus, Friday's sharp rebound in the yen more directly reflects the market's repricing of the policy signal that "neither U.S. nor Japanese officials want the yen to weaken excessively."

Moving forward, the market will continue to watch three variables: whether Fed rate expectations further widen the U.S.-Japan rate differential; whether the Bank of Japan releases further signals of accelerated rate hikes; and whether the "close communication" emphasized by the U.S. and Japanese finance ministers will translate into specific exchange rate policy actions.