U.S. Spares "Yen" Talks, BOJ Rate Hike to Delay, Yen Weakness Returns?

TradingKey - After U.S. Treasury Secretary Scott Bessent stated that the Trump administration would not seek specific exchange rate targets in trade talks with Japan, the yen fell sharply, with the dollar-yen pair rising over 1%. The market now turns its attention to the second round of U.S.-Japan tariff negotiations scheduled to begin on April 30.

On Wednesday, April 23, Bessent explicitly stated that the Trump administration would not pursue specific exchange rate targets in its talks with Japan but instead emphasized Japan’s adherence to long-standing commitments within the Group of Seven (G7).

Bessent’s remarks dispelled speculation about Trump seeking a "Plaza Accord 2.0," which would have aimed to weaken the dollar and strengthen the yen to boost the competitiveness of U.S. exports. The dollar-yen exchange rate (USD/JPY) rebounded from around 140 to as high as 143.58.

According to Nikkei, the schedule for the second round of negotiations has been finalized, with Japanese Minister of Economic Revitalisation Ryosei Akazawa set to visit the U.S. from April 30 to May 2.

On Wednesday, Japanese Finance Minister Katsunobu Kato reiterated that currency values should be determined by the market, adding that excessive or disorderly volatility could negatively impact economic and financial stability.

Aside from the temporary fading of expectations for a "Plaza Accord 2.0," delays in the Bank of Japan’s (BOJ) potential interest rate hikes may continue to weigh on the yen.

According to the latest Reuters survey, more than half of the economists polled expect the BOJ to keep rates unchanged at its upcoming policy meeting over the next two days, with further rate hikes potentially delayed until the third quarter. In March’s survey, over two-thirds of respondents anticipated a Q3 rate hike.

Some economists noted that the uncertainty caused by Trump’s tariffs has clouded the economic outlook. Anticipated deterioration in Japanese corporate earnings could lead the BOJ to postpone rate hikes.

However, regarding the yen’s exchange rate, decisions by the BOJ, outcomes of U.S.-Japan negotiations, and shifts in global risk sentiment remain uncertain. 

Amid declining confidence in dollar assets and growing uncertainties surrounding Trump’s tariffs, Deutsche Bank’s latest report suggests that the dollar may have already entered a long-term bear market.