Trump's inauguration exacerbates uncertainty, Japan's top currency official quickly increases verbal intervention.

Japan's top foreign exchange official, Junzaburo Mimura, said on Tuesday that Japan is closely monitoring positions in the currency market, including those speculative positions based on bets, as currency fluctuations are undesirable. Mimura stated at an event that the uncertainty of US President Trump's economic policies may affect the market in unpredictable ways, highlighting the difficulty of predicting whether the dollar will continue its overall upward trend. Mimura emphasized that authorities are more concerned with volatility when guiding exchange rate policies, rather than the level of the yen. "We are definitely monitoring speculative positions on a daily basis, as excessive volatility or disorderly exchange rate movements are undesirable, as stated in the G7 exchange rate agreement," added Mimura, Vice Minister of Finance in charge of international affairs. When asked about the policy meeting of the Bank of Japan this week, Mimura stated that the government and the central bank communicate closely through various channels every day. "I have been conveying my views to them. The Bank of Japan may also be gathering various information, including market and annual wage negotiations," Mimura said. According to sources, the Bank of Japan is expected to hike interest rates on Friday unless Trump causes any market shocks, which would raise short-term borrowing costs to the highest level since the 2008 global financial crisis. On Tuesday, after Trump hinted at possible tariffs on Canada and Mexico in the near future, the USD regained some ground overnight. The USD/JPY briefly fell below 155, hitting a new one-month low. At the time of writing, the USD/JPY exchange rate was 1 USD to 155.60 JPY. The weakness of the yen has been a headache for Japanese policymakers as it raises import costs and drags down consumption, accelerating inflation. Some analysts attribute the weakness of the yen to the Bank of Japan's ultra-low interest rates and slow pace of rate hikes. Mimura stressed the need to support consumption by turning real wages into positive values. He said, "The outlook for real wages is very important. From our perspective, the weakening of the yen will push up inflation by raising import costs." Change in G7 exchange rate agreement Additionally, Mimura stated that he has not heard of any country calling for a change in the long-standing commitment of G7 developed economies to warn against excessive currency fluctuations and disorderly movements. "Indeed, G7 has reiterated this commitment at every meeting, which was initially reached during the first government of Trump in 2017," he said. Mimura referred to the agreement reached by G7 financial leaders in May 2017, which reaffirmed that "excessive fluctuations in exchange rates and disorderly movements could have adverse effects on economic and financial stability." Japan has been calling for G7 to reaffirm this commitment as it would give Japan the power to intervene in the foreign exchange market to counter the rapid fluctuations of the yen. Trump did not immediately implement the promised tariffs on Monday, but directed federal agencies to "investigate and remedy" the ongoing US trade deficit, as well as the unfair trade practices and currency manipulation of other countries. Japan's export-dependent economy is vulnerable to any harm high tariffs may cause to global trade. Although the International Monetary Fund (IMF) raised its forecast for global economic growth in 2025 last week, it warned countries against taking unilateral measures such as tariffs, non-tariff barriers, or subsidies that could harm trading partners and lead to retaliation. Mimura stated that it is important to differentiate between protectionist policies that cause division and measures implemented by many countries as industrial policy. He pointed out that tariffs serve several different purposes, such as bargaining tools to negotiate agreements with other countries, reduce trade deficits, or increase revenue. Mimura said Japan must carefully examine the motives behind Trump's expected tariffs to determine the best response. "You need to look at the details of the Trump administration's tariff plan. This is not a 'all or nothing' decision," he said.