Japan’s Takaichi: Prioritise measures to strengthen economy by bolstering sectors with a competitive edge

Japanese Prime Minister Sanae Takaichi stated on Friday that strengthening areas of competitive advantage would be central to the government’s measures to bolster the economy. With market turbulence affecting Japan and other countries worldwide, she said the government would track developments closely and evaluate their potential impact.

Selected remarks

Aware AI, chip shares dropping sharply, unsure if temporary or lasting.

Focus on measures to reinforce economy by enhancing areas with competitive edge.

Market turbulence impacting not only Japan but nations worldwide, so monitoring progress closely.

Aim to use proceeds from BoJ’s faster ETF sales to fund spending on key areas for Japan's economic security.

Proceeds from BoJ ETF sales reflect Japan's economic growth, should be used to promote further growth and a virtuous economic cycle.

Proceeds from BoJ's accelerated ETF sales can fund bonds to help government secure funds for public spending targeting public investment.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

0.07% daily decline in USD/JPY

157.90 is the USD/JPY exchange rate at the time of writing. The pair is 0.07% lower on the day.

Japanese Yen: Key Questions

Japanese Yen: Main Drivers

Among the currencies traded most actively worldwide is the Japanese Yen (JPY). Japan’s economic performance broadly shapes its value. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields, and traders’ appetite for risk.

Bank of Japan Policy and the Yen

Currency control is part of the Bank of Japan’s mandate, making its actions a major influence on the Yen. Direct intervention in currency markets has occasionally been used by the BoJ, usually to weaken the currency. Political concerns among Japan’s main trading partners, however, discourage frequent intervention. Between 2013 and 2024, the BoJ’s ultra-loose monetary policy drove the Yen lower against its major peers as its policy increasingly diverged from that of other leading central banks. The gradual withdrawal of that ultra-loose stance has more recently provided some support for the Yen.

Japanese and US Bond Yield Gaps: The Yen Impact

By maintaining ultra-loose monetary policy over the past decade, the BoJ increasingly diverged from other central banks, notably the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, supporting the US Dollar relative to the Japanese Yen. The gap is now narrowing following the BoJ’s 2024 decision to phase out ultra-loose policy, alongside interest-rate cuts by other major central banks.

Risk Sentiment and Demand for the Yen

Often regarded as a safe-haven investment, the Japanese Yen tends to attract investors during periods of market stress because of its perceived reliability and stability. In turbulent markets, the currency is therefore likely to appreciate against currencies considered riskier investments.