Japan-US trade talks may heighten uncertainty, add to yen volatility

By Toru Fujioka

 

As Japan’s chief trade negotiator Ryosei Akazawa heads to the US to kick off trade talks, he faces the risk of being forced to discuss currencies more than he wants, a scenario that may add further volatility to the yen.

 

US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer have both already made it clear they want to discuss currency issues. As Akazawa heads for talks on Wednesday, it remained unclear how much he would be dragged into a discussion on the topic this week, but comments from the US side suggest that he’ll have to address it sooner or later.

 

“Our view is that currency manipulation or misalignment, whatever you want to call it — that can have a negative impact on U.S. exporters,” Greer said Sunday on CBS. It can give an unfair advantage to foreign firms exporting to the US, he added.

 

Japan’s trade talks with the US are being closely watched around the world as Tokyo finds itself at the front of the line in negotiations with the Trump administration. The outcome could set the tone for how future deals take shape, especially as currency issues emerge as a sticking point. It may influence how other countries facing similar US pressure on their currency policy approach their own talks. 

 

While US President Donald Trump has also attacked the way the weak yen may be helping Japanese exporters, the yen has hit a six-month high against the dollar this week. As of Wednesday afternoon it was trading around 142 to the greenback, up from being as weak as 158.35 in January.

 

Given the rapid appreciation, it’s unclear whether the US will then try and get Japan to make a commitment that would further strengthen the yen. If the US does try to push Japan toward that direction, the Asian nation risks facing a double blow from a tariff-triggered global economic downturn and a hit to exporters’ bottom line through a stronger yen. 

 

“The focus of the Japan-US trade negotiations this time is how much the exchange rate issue is seen as a problem by the US and what specific measures they will seek to correct the yen’s depreciation,” said Tsuyoshi Ueno, executive research fellow at NLI Research Institute.

 

On the front line for Japan will be Akazawa, Prime Minister Shigeru Ishiba’s confidante and economic revitalization minister. Akazawa said that he could discuss currencies if Bessent brings it up, but at the same time he’s repeatedly said he expects Finance Minister Katsunobu Kato to lead any talks on currencies — signaling that he’d like to avoid the topic this week as much as possible.    

 

Japan’s government has attempted to separate the matter of foreign exchange rates from trade talks after they successfully managed to do so during Trump’s first term. Japan’s then Prime Minister Shinzo Abe convinced Trump to let their finance chiefs handle currency issues, and ultimately a currency clause was left out of the trade pact that was signed by the two countries.  

 

Kato said Tuesday he is arranging a trip to Washington next week during the International Monetary Fund meetings, and he’s aiming to meet Bessent there. 

 

“Countries have had to revalue to make sure they aren’t giving artificial competition,” Greer said on the CBS program. “We have a $1.2 trillion trade deficit that Biden left us with. It’s the highest in human history. And currency — certainly part of that.”