By Makiko Yamazaki and Takaya Yamaguchi
TOKYO, Feb 3 (Reuters) – Just as Japan was finally gaining ground in its long, hard fight to stop sharp currency falls, a fresh challenge has emerged from its own prime minister, whose off-the-cuff comments tell a different story about yen weakness.
Prime Minister Sanae Takaichi, who heads to a snap election she is widely expected to win this Sunday, triggered a yen selloff earlier this week after a campaign speech in which she talked up the benefits of a weaker currency.
While she later walked back those comments, monetary bureaucrats are privately worried mixed signals from the prime minister could undermine a push to shore up the battered currency, particularly through U.S. rate checks that signalled rare joint efforts with Washington.
The weak yen has become a political sore point both at home and abroad, blamed domestically for soaring imported costs and more recently by the Trump administration for potentially destabilising U.S. markets.
Takaichi’s campaign comments this week quickly raised eyebrows among officials in her administration, according to people familiar with the matter, prompting behind-the-scenes efforts to prevent negative ramifications in financial markets.
“Officials were scrambling to respond through Takaichi’s X social media account to clarify her intentions over the weekend,” one official at the prime minister’s office said.
In her X post on Sunday, Takaichi clarified that she did not have a preference for the yen’s direction, noting that her earlier comments were intended solely to state that she would aim to build an economic structure that is resilient to exchange-rate fluctuation.
SCRAMBLE TO KEEP THE CASE FOR A STRONG YEN
After weeks of heavy downward pressure on the yen, signs of close coordination between Tokyo and Washington, including rare rate checks by the New York Federal Reserve, have helped steady the Japanese currency.
Takaichi’s initial remarks were at odds with Minister of Finance Satsuki Katayama, who has repeatedly threatened market interventions to support the yen and noted U.S. Treasury Secretary Scott Bessent shares concerns over excessive volatility in the yen.
“It revealed a complete lack of a sense of crisis over the historically weak yen,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said. “Instead, it laid bare that Takaichi’s long-held belief that yen depreciation is beneficial to the economy remains unchanged.”
After Takaichi’s remarks, the yen has given up about half of its 7-yen gains driven by the spectre of joint U.S.-Japan interventions to support the yen.
The government also made sure that Takaichi’s clarification of her comments were passed on to U.S. authorities, another official said. So far, Washington has stayed quiet on Takaichi’s remarks.
“From Washington’s perspective, the remarks were also likely unwelcome,” said Tsuyoshi Ueno, a senior economist at the NLI Research Institute.
U.S. officials have been wary that surging Japanese government bond yields, which have come alongside yen weakness, could reverberate through U.S. markets, pushing up Treasury yields and triggering selloffs in U.S. assets, Ueno said.
According to several Japanese government sources, Bessent told Katayama at their bilateral meeting held on the sidelines of the World Economic Forum’s annual gathering in Davos that Japan’s rising debt yields had triggered a triple selloff in the United States and urged Japan to respond.
Japan’s bond rout, triggered by Takaichi’s election pledge to temporarily waive the sales tax on food, coincided with market volatility stirred by U.S. President Donald Trump’s threats to reignite a trade war with Europe over Greenland.
When approached by Reuters for comment, a U.S. Treasury spokesperson said Treasury remains in continuous communication with economic counterparts across the globe, including Japan.
The spokesperson also said during his discussions with many of these counterparts, Secretary Bessent has repeatedly emphasised that financial markets should reflect economic fundamentals and not unwarranted volatility.
Katayama said in January she and Bessent shared concerns over what she called the yen’s recent “one-sided depreciation”.
Tokyo’s official stance on yen moves contrasts sharply with the new premier’s own recent public musings.
“I read the whole of Takaichi’s campaign speech, but I honestly wonder whether it needed to be said in the first place,” one government official said.
“She rambled on, off the cuff without notes, but it’s ultimately unclear what she was trying to say,” he added.
The government officials declined to comment as the matter is private.
SHOOTING FROM THE HIP
This is not the first time Takaichi has made off-hand remarks that have departed from lines carefully crafted by bureaucrats.
Weeks after she took office in October, she commented in parliament about how Tokyo might react to a hypothetical Chinese attack on Taiwan, touching off the biggest dispute with Beijing in over a decade.
But off-hand remarks are one of the reasons behind her popularity, appealing particularly to younger voters.
Takaichi’s Liberal Democratic Party is likely to score a landslide victory in next week’s lower house election, a survey by the Asahi newspaper showed, heightening the chance the country will continue to pursue big spending and tax cuts.
(Reporting by Makiko Yamazaki and Takaya Yamaguchi; additional reporting by Tamiyuki Kihara, Yoshifumi Takemoto and Leika Kihara; Editing by Sam Holmes)
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