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(Bloomberg) — Sudden moves in Japan’s currency hurt companies and households, and that impact requires close government scrutiny, Japan’s newly appointed finance minister said, following a pronounced slide in the yen in recent days.
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“The problem is sharp currency fluctuations can have a negative impact on business activity and doesn’t help citizens’ lives,” Katsunobu Kato said in a group interview Monday, after being appointed finance chief by Prime Minister Shigeru Ishiba last week.
Kato also called for clear central bank communication while reiterating that the government will quickly put together an economic package.
Japan’s currency is currently trading at around 148.40 against the dollar compared with a high of 141.66 just a week ago as investors try to determine the direction of Ishiba’s new administration. Strong US jobs data on Friday gave the currency an additional shunt as market players lowered their expectations for the size of Federal Reserve interest rate cuts.
“We will carefully watch the impact of forex moves on the Japanese economy and people’s lives,” Kato said.
With a general election slated for Oct. 27, a renewed bout of currency weakness may present difficulties for the new government amid ongoing voter dissatisfaction with high prices inflated by the feeble yen. The government has already spent more than $100 billion this year propping up the currency and will likely want to avoid having to intervene in markets again if possible. Kato didn’t specify what action the government might take if the yen weakens further.
The Japan leadership race and comments from the new government have contributed to recent volatility in the yen. Ishiba said last week that Japan’s economy currently wasn’t ready for higher interest rates, in remarks that prompted the currency to fall. Later he appeared to walk back some of those comments, suggesting he is still in the process of judging how best to communicate with markets.
Touching on messaging to markets, the newly appointed finance chief said he expects the Bank of Japan to communicate carefully with the market and manage policy appropriately toward its price goal. Last week the government and the central bank confirmed a joint accord that states their commitment to a 2% inflation target.
A BOJ rate hike at the end of July caught out some market participants and was seen contributing to a market meltdown that resulted in Japan’s worst ever daily slide in stock prices. The bank meets at the end of this month and is widely expected to keep rates unchanged.
How the BOJ will signal its intentions over the coming months will be closely watched by investors and economists. More than half of BOJ watchers expected the bank to push up interest rates for a third time this year in December, according to a Bloomberg survey conducted last month before Ishiba was elected as the nation’s new leader.
Kato said the specifics of monetary policy should be left to the central bank, repeating the government’s existing stance.
To protect households from the impact of higher prices and support growth, last week Ishiba ordered a package of economic measures and a supplementary budget to help fund it. The upcoming package will include cash handouts for low-income households and regional economies, Ishiba said.
“We want to put this together as soon as possible, and take more concrete steps,” Kato said.
The additional spending will likely add to Japan’s debt burden, further straining the country’s already tough fiscal situation. Japan’s debt reached 255% of its gross domestic product in 2024, according to the International Monetary Fund. The finance minister said that the government has to keep the 2025 primary balance fiscal health goal in mind while working on spending reform.
Kato added that the government will continue to strengthen the competitiveness of the semiconductor industry.
“The government’s stance has been the chips sector is of key importance for economic national security,” said Kato. “We’ll keep following through on plans to support it.”
–With assistance from Paul Jackson.
(Updates with more details, comments from Kato)
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