Mayor Takashi Sanae speaks extemporaneously on the depreciation of the yen, the results of the joint US-Japan intervention facing a test.

Just as Japan's long and arduous battle to prevent a sharp decline in its currency exchange rate was making progress, a new challenge emerged, and it came from Japan's own Prime Minister. She made off-the-cuff remarks on the weak yen issue, diverging from the official stance. In a campaign speech, the Prime Minister Naoto Kan spoke about the benefits of the yen depreciation, leading to the yen being sold off earlier this week. The Prime Minister will face a major election this Sunday, with widespread expectations of her victory. Although she later retracted her remarks, currency policy officials privately worry that the mixed signals from the Prime Minister may weaken efforts to boost the currency, especially through rare joint efforts with the U.S. on exchange rate checks. The weak yen has become a political sore point domestically and internationally, blamed domestically for soaring import costs, and recently denounced by the Trump administration as potentially causing market turmoil in the U.S. Sources revealed that the campaign remarks made this week by Prime Minister Kan quickly raised eyebrows among some officials in her government, prompting discreet actions by relevant departments to prevent negative impacts on the financial markets. A government official from the Prime Minister's office stated, "Officials are busy responding through Kan's X (original Twitter) account over the weekend to clarify her true intentions." In Kan's X post, she clarified that she has no bias toward the direction of the yen and pointed out that her previous remarks were only meant to illustrate her goal of building an economically resilient structure against currency fluctuations. Striving to maintain a "strong yen" stance After weeks of heavy downward pressure on the yen, signs of close coordination between Tokyo and Washington (including a rare currency check by the New York Fed) have helped stabilize the Japanese currency. Kan's initial remarks were at odds with Finance Minister Okatsuyuki Eiwa's position. Eiwa had threatened several times to intervene in the markets to support the yen and pointed out that U.S. Treasury Secretary Bennett also expressed concerns about excessive yen fluctuations. Masafumi Yamamoto, Chief Foreign Exchange Strategist at Mizuho Securities, said, "This reflects her complete lack of urgency about the historical weakness of the yen. Instead, it exposes Kan's long-held belief that yen depreciation is beneficial for the economy." Following Kan's remarks, the yen has dropped about half of its 7-yen gain recorded earlier due to the possibility of joint intervention by the U.S. and Japan. Another official stated that the government also ensured that Kan's clarification statement was conveyed to U.S. authorities. So far, the U.S. has remained silent on Kan's remarks. Tsuyoshi Ueno, Senior Economist at the NLI Institute of Research, believes, "From Washington's perspective, these remarks may also be unwelcome." The economist noted that U.S. officials have been concerned that rising Japanese government bond yields accompanying yen weakness could affect U.S. markets, driving up U.S. bond yields and triggering selling of U.S. assets. Several Japanese government sources revealed that during a bilateral meeting at the Davos World Economic Forum annual meeting, Bennett told Finance Minister Eiwa that Japan's rising debt yields had triggered a "stocks, bonds, and exchange rate triple hit" in the U.S. and urged Japan to take action. The collapse of the Japanese bond market was triggered by Kan's temporary suspension of the consumption tax, coinciding with market volatility sparked by U.S. President Trump's threats to reignite trade wars with Europe over the Greenland issue. A spokesperson for the U.S. Treasury Department stated that the Department is in continuous communication with global economic counterparts, including Japan. The spokesperson also said that in discussions with many counterparts, Secretary Bennett repeatedly emphasized that financial markets should reflect economic fundamentals, not baseless fluctuations. In January, Eiwa stated that she and Bennett shared common concerns about what she referred to as recent "unilateral depreciation" of the yen. The official stance in Tokyo sharply contrasts with the recent public insights of this new Prime Minister. A government official stated, "I read the full text of Kan Naoto's campaign speech, but I sincerely wonder if it was necessary to say those things in the first place." He added, "She spoke off-the-cuff and ended up being unclear about what she wanted to say." The Cost of Acting on Impulse This is not the first time Kan has made impromptu remarks that deviate from carefully crafted official stances. A few weeks after taking office last October, her comments in parliament sparked the biggest controversy in over a decade. But her casual remarks are also one of the reasons she is popular, especially among young voters. Surveys show that Kan's Liberal Democratic Party is likely to win overwhelmingly in the upcoming House of Representatives election next week, increasing the country's chances of continuing its policies of expanding spending and cutting taxes.