U.S. President Donald Trump stated on Monday that he had warned leaders of Japan and China against devaluing their currencies, asserting that such actions are unfair to the United States. Trump explained that attempts by these countries to weaken their currencies make it more difficult for American manufacturers to compete.
“I’ve called President Xi and the leaders of Japan to tell them they can’t keep reducing and breaking down their currency,” Trump said during a White House appearance. “It’s unfair to us. It’s tough for companies like Caterpillar when Japan, China, and others are depreciating their currencies,” he added.
Trump suggested that rather than continuously raising complaints, the U.S. could counteract the negative impact on its manufacturers by imposing tariffs. “The solution is simple: tariffs,” Trump remarked, emphasizing the ease with which tariffs could address the issue.
Following Trump’s comments, Japan’s Nikkei share index dropped more than 1% on Tuesday, as the yen briefly strengthened, reaching 149.11 against the dollar, its highest value since February 28. This highlighted the potential risks Japan’s export-dependent economy faces amid uncertainty regarding U.S. policies on tariffs and currency manipulation.
In response to Trump’s remarks, Japanese Finance Minister Katsunobu Kato clarified that Japan’s policies were not aimed at weakening the yen. “Japan has confirmed its stance on currency policy with the G7 and the United States,” Kato said during a Tokyo press conference, noting that these discussions included bilateral talks with U.S. Treasury Secretary Scott Bessent in late January.
Additionally, Japan’s Economy Minister Ryosei Akazawa emphasized that the government only intervenes in the currency market when it believes yen movements are driven by speculation. Japanese policymakers have been cautious about the potential volatility triggered by Trump’s public comments on the yen, which could destabilize the country’s economic recovery.
Prime Minister Shigeru Ishiba had previously agreed with Trump that foreign exchange matters should be handled by the finance ministers of both countries. While a weaker yen typically benefits Japan’s export sector, the government has recently taken steps to prevent excessive depreciation, which could increase import costs and harm domestic consumption.
Atsushi Mimura, Japan’s chief currency diplomat, acknowledged last week that the yen’s recent rebound reflects the country’s strong economic fundamentals and the potential for an interest rate hike by the Bank of Japan (BOJ). Japan has long advocated within the G7 and G20 for an agreement that excessive volatility in currency markets is undesirable, using this position to justify interventions in the yen market when its movements become too erratic.
Trump’s criticism of the yen and concerns over his tariff policies’ impact on global growth have created further challenges for the Bank of Japan, particularly as it contemplates the timing of future interest rate hikes. After concluding a decade of extensive monetary stimulus last year, the BOJ has raised borrowing costs in response to inflation surpassing its 2% target for nearly three years.
A majority of economists polled by Reuters expect the BOJ to implement another rate hike later this year, most likely during the third quarter, potentially bringing the rate to 0.75%.
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