Japan’s Kato says US Treasury holdings among tools for trade talks
Japan’s Finance Minister Shunichi Kato said on Friday that Japan's huge US Treasury holdings are among tools available for Tokyo in trade negotiations with the United States, per Reuters.
Kato further stated that he did not discuss with US about the foreign exchange (FX) target and framework to control FX moves.
Key quotes
Did not discuss with US FX target, framework to control FX moves.
Discussed with US need for constructive discussion on FX.
No discussion whatsoever with US on where FX levels should be.
Confirmed with US during earlier meeting with Bessent FX moves should be set by markets, excessive FX volatility undesirable.
Japan is not manipulating Yen, must explain this thoroughly to US.
Japan's huge US Treasury holdings among tools it can wield in trade negotiations with the US, then adds whether Japan wields that card is a different question.
Noted that while Japan's main reason for holding such large reserves is to maintain sufficient liquidity for possible Japanese Yen intervention “We obviously need to put all cards on the table in negotiations. It could be among such cards.”
Whether we actually use that card, however, is a different question.
Market reaction
At the time of writing, the USD/JPY pair is trading 0.07% lower on the day to trade at 145.30.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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