Japan PM vows to underpin yen by boosting economic competitiveness

Japanese Prime Minister Sanae Takaichi asserted that her government's focus on enhancing Japan's economic competitiveness would bolster confidence in the yen, as revealed in a recent Nippon Television interview. She also mentioned informing US President Donald Trump about the yen's undervaluation during their meeting last month. However, Takaichi emphasized that the nation's economic policy is not centered on manipulating exchange rates.

The administration's aim is to enhance Japan's growth potential by augmenting the economy's capacity via substantial investments in crisis management and growth sectors, which would enhance global competitiveness and market confidence in the yen. Despite the Bank of Japan's interest rate hikes, the yen's weakness has become a significant concern, raising import costs and broader inflation.

Takaichi's proposed spending plans have been criticized for contributing to the yen's depreciation and increasing bond yields, as investors worry about Japan's deteriorating finances and the likelihood of additional debt issuance. Budget requests for the upcoming fiscal year totalled 143 trillion yen ($903 billion), nearly reaching pandemic-era levels, and may increase further due to many requests without specified amounts, including defense spending.

The administration's lack of detail on funding a plan to temporarily suspend a levy on food items and an anticipated rise in defense spending has made bond markets uneasy. Takaichi clarified that the budget requests would not necessarily determine the size of next year's budget and stressed that the government would thoroughly evaluate necessary and effective policies before the year ends. She vowed to set clear priorities, reform the budget process, and manage bond issuances prudently to secure funding for fiscal needs.