The weakened yen touches the nerves of the government! Japanese Finance Minister sends a strong signal: closely monitoring the foreign exchange market and will communicate closely with the United States.

Japanese Finance Minister Kaori Katakura expressed high vigilance over exchange rate fluctuations on Friday, revealing to the parliament a strong sense of urgency in closely monitoring the recent depreciation trend of the yen. When asked whether the depreciation of the yen would drag down wage growth by pushing up import costs, Katakura told the parliament, "We are closely monitoring the recent exchange rate trend with a sense of urgency." She further stated, "We are also maintaining extremely close communication with the United States and will continue to engage in dialogue to ensure that the concerns you have raised do not materialize." This statement highlights the decision-makers' high sensitivity to the weakness of the yen, especially its impact on raising the cost of living through increased import prices, against the backdrop of the complex interplay of the current political landscape, fiscal policy, and central bank signals. From a political perspective, the yen has not found support. Prime Minister Naonae Takai, who was just re-elected in a strong showing in the election, is pushing for a shift away from fiscal austerity, proposing long-term investment plans and tax cuts aimed at boosting growth. Although these measures are intended to promote growth, they have reignited concerns in the market about Japan's already heavy debt burden, thereby pushing up term premia. If investors demand higher returns to hold Japanese government bonds, the yen may face further depreciation pressure. Monetary policy has become another focus. There are reports that Takai is cautious about further rate hikes by the Bank of Japan. The cabinet she leads has nominated two scholars considered to be more "dovish" to join the Bank's policy committee, which the market interprets as an attempt to steer the policy debate towards a slower normalization of monetary policy. In response to this news, the yen weakened. However, the signals within the Bank of Japan are not entirely "dovish." Policy Board member Hajime Takata, seen as one of the main hawks, reiterated earlier that the decision-making body should remain alert to the risks of inflation overshooting and should continue to gradually push for rate hikes. Meanwhile, Tokyo's February inflation data sent out mixed signals: the core CPI, excluding fresh food, fell to 1.8% year-on-year, but the "core-core" CPI, excluding fresh food and energy, edged up to 2.5%. This broadly aligns with the Bank of Japan's view that inflation slowing down is temporary due to subsidy and base effects. For the market, what ultimately emerges is the familiar tension: whenever the yen weakens, officials strengthen verbal warnings of exchange rate intervention; domestically, the political landscape tends towards creating a loose financial environment; and internally at the Bank of Japan, there is a debate unfolding over the pace of rate hikes. This situation keeps the threat of exchange rate intervention ever present, while also making the yen highly sensitive to fluctuations in U.S. Treasury yields and changes in market expectations for the Bank of Japan's next move.