Japan's Katayama: Need to communicate JGB market before budget compilation
In the Asian trading session on Tuesday, Japan Finance Minister (FM) Satsuki Katayama highlighted the need to communicate to financial and Japanese Government Bonds (JGBs) markets regarding the administration’s intentions towards the fiscal policy stance.
On Monday, Japan Prime Minister (PM) Sanae Takaichi addressed the need for an exit from the excessively tight fiscal policy to spur growth. However, Takaichi confirmed that the government won’t pursue reckless spending. She added that the additional government spending will be funded by expanding Gross Domestic Product (GDP)-driven tax revenue.
Remarks from Japan FM Katayama
Can't comment on source for funding food tax cut beyond what PM said yesterday.
Important to communicate with markets on process of compiling budget.
Must communicate with JGB market in run up to budget compilation, we hadn't done that.
Monetary policy is part of economic policy, as stated in BoJ act.
Believe government's relationship with BoJ has been smooth.
Economic blueprint draft dropped out some consideration of history on BoJ-government relationship, as our desire for proactive fiscal policy has come to forefront.
Very good that final version of economic blueprint has won market understanding.
Weak Yen have both merits, demerits.
Won't comment on potential intervention.
No change in our stance that we're ready to respond on forex as needed.
US, Japan both share this stance on Forex.
GPIF portfolio is far short on alternative investments.
My remarks on GPIF portfolio were meant that households should benefit from economy to be boosted by growth strategy.
Aware that GPIF needs to follow rules for portfolio changes.
Important to explain fully to market to avoid speculative trading on JGB market.
Believe JGB will become attractive asset relatively for pension funds, but not meaning to push for specific changes as that would be against rules.
PM Takaichi has carried over BoJ accord signed during Abe administration.
Market reaction
A slight buying interest was seen in the Japanese Yen (JPY) following remarks from Japan FM Katayama. At press time, USD/JPY trades almost flat at around 163.73.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
