Takaichi's Yen Comments Undermine Japan's Currency Strategy

Just as Japan seemed to be stabilizing its falling currency, Prime Minister Sanae Takaichi introduced a fresh wave of uncertainty with off-the-cuff remarks that appeared to favor a weaker yen.

During a campaign speech this week, Takaichi—who is widely expected to win this Sunday's snap election—triggered a yen selloff by highlighting the benefits of a devalued currency. While she later retracted the comments, government officials privately worry the mixed signals could derail a coordinated effort with Washington to support the yen.

The weak yen has become a major political issue. At home, it is blamed for driving up the cost of imports. Abroad, the Trump administration has voiced concerns that it could destabilize U.S. markets.

Tokyo Scrambles for Damage Control

Takaichi's remarks quickly caused alarm within her own administration. According to one official at the prime minister's office, a scramble ensued over the weekend to contain the market fallout.

"Officials were scrambling to respond through Takaichi's X social media account to clarify her intentions," the official stated.

In a post on her X account on Sunday, Takaichi clarified that she had no preference for the yen's direction. She explained that her earlier speech was meant to convey her goal of building an economy resilient to exchange-rate fluctuations.

Another official confirmed that the government ensured U.S. authorities were informed of Takaichi's clarification. So far, Washington has not publicly commented on the matter.

Contradicting Official Policy

The prime minister's initial comments stood in stark contrast to the government's official stance. After weeks of heavy downward pressure, close coordination between Tokyo and Washington—including rare rate checks by the New York Federal Reserve—had finally helped steady the yen.

Finance Minister Satsuki Katayama has repeatedly threatened market intervention to prop up the currency. She has also noted that U.S. Treasury Secretary Scott Bessent shares her concerns over the yen's excessive volatility.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said Takaichi's remarks exposed a deeper view. "It revealed a complete lack of a sense of crisis over the historically weak yen," he commented. "Instead, it laid bare that Takaichi's long-held belief that yen depreciation is beneficial to the economy remains unchanged."

Following the prime minister's speech, the yen gave up approximately half of the 7-yen gain it had recently made on the prospect of joint U.S.-Japan intervention.

Washington's Unwelcome Surprise

U.S. officials have been wary of the side effects of yen weakness, particularly the surge in Japanese government bond yields. According to Tsuyoshi Ueno, a senior economist at the NLI Research Institute, Washington is concerned that rising Japanese yields could ripple through U.S. markets, pushing up Treasury yields and triggering selloffs in American assets.

"From Washington's perspective, the remarks were also likely unwelcome," said Ueno.

Japanese government sources revealed that at a meeting in Davos, Treasury Secretary Bessent told Finance Minister Katayama that Japan's rising debt yields had triggered a "triple selloff" in the United States and urged Tokyo to respond. This bond rout in Japan, initially sparked by Takaichi's campaign pledge to waive sales tax on food, added to market volatility already stirred by President Donald Trump's trade threats against Europe.

The U.S. Treasury Department did not respond to a request for comment.

A Pattern of Off-the-Cuff Remarks

This is not the first instance of Prime Minister Takaichi making unscripted comments that diverge from carefully crafted policy. Weeks after taking office in October, her remarks in parliament on a hypothetical Chinese attack on Taiwan ignited a major diplomatic dispute with Beijing.

However, this candid style is also a source of her popularity, particularly among younger voters. A recent Asahi newspaper survey shows Takaichi's Liberal Democratic Party is on track for a landslide victory in the upcoming election, suggesting her approach of pursuing significant spending and tax cuts is likely to continue.

One government official, who wished to remain anonymous, expressed frustration with the prime minister's communication. "I read the whole of Takaichi's campaign speech, but I honestly wonder whether it needed to be said in the first place," he noted. "She rambled on, off the cuff without notes, but it's ultimately unclear what she was trying to say."