Why Yen is the wrong gamble in any AS-Japan trading line
The desire of US President Donald Trump for a stronger yen to the dollar is almost certain to become a trading negotiation with ongoing Japan in Washington, but analysts say any effort to change the currency is full of risks for both parties.
The Head of the Japanese Negotiator, Minister of Economy Ryosei Akazawa, began the conversation on Wednesday by meeting the US Secretary of the Treasury Scott Besent and the Jamieson trading representative, with Trump also made a surprising performance.
The White House placed the exchange rate firmly in the agenda after Trump last month accused Tokyo of pursuing policies to dedicate Yen, giving Japan the advantage of unfair trade.
Yen did not take into account the negotiations on Wednesday, said Akazawa, but the problem of currencies naturally was more discussion for the Minister of Finance Katsunobu Kato, who would hold his own talks with Bescent when he arrived in Washington next week for the international monetary meeting and the World Bank meeting.
Analysts warn that any agreement in which the dollar must trade versus Yen inherent inherent.
Efforts by Tokyo to force Japanese banks to accelerate interest rates can encourage yen, but the risk of eliminating young Japanese economic recovery and stepping on the idea of the independence of the central bank.
Japanese officials can also sell US dollars for Yen, but that means attracting billions of dollars that have been invested in US debt when the market is very fragile.
Citigroup sees Japan as the main target if Trump’s administration is aiming at coordinated dollar devaluations to make the United States more competitive globally, a proposal dubbed “Mar-A-Lgo Agreement”.
“At this point we do not see ‘Mar-A-Lgo Accord’ as a concrete risk,” said Citigroup Osamu Takashima’s Strategy Expert in the research record.
However, “countries like Japan, which have a fairly large foreign currency reserves and whose currencies are underestimated, will tend to be a target in this case,” he said.
The US is Japan’s largest export destination and car delivery contributes about 28% of its exports there. Japan staggered from Trump’s 25% assignment for cars. Since its announcement on March 26, the average benchmark of Nikkei NI225 shares has declined 6%.
Akazawa offered several initial discussion details, but told reporter Trump said that completing an agreement with Japan was a “top priority”.
Mar-a-lago accord?
Yen has come out of the lowest position to the dollar.
In the middle of last year, the dollar worth nearly 162 Yen USDJPY for the first time since 1986, the period after Plaza Accord when Japan, England, Germany and France agreed with the US at the New York Plaza Hotel to devalue the dollar.
The Mar-A-Lgo Accord is a reference for this and Mar-A-Lgo Trump resort in Florida.
But this week, the dollar dropped below 142 yen after sliding sharply on fears that Trump’s focus on the tariff could trigger US recession.
And speculative betting on further Yen strength (1097741Nnet) has built up to the highest level since the Futures Commodity Trade Commission (CFTC) began to record data in 1986.
Trump and Besent may be advised to remember the current environment before making strong demands for help weaken the dollar.
Unlike in 1985 during the Accord Plaza, international investors had nearly $ 15 trillion in US government debt, which had held a special position as a benchmark for returning risk -free investment.
The box induced by Trump induced this month has questioned these assumptions and, while some levels of calm have returned to the debt market this week, fragile sentiments.
“We must remember that the Treasury Secretary is the head of the head seller for the US Department of Finance,” said Yunosuke Ikeda, Head of Macro Japan Nomura.
“Trying to talk about dollars will be a very dangerous strategy at this time, even if Bescent believes in the benefits of a weaker currency in the long run.”
While Yen remains weak with historical standards and Tokyo also wants a stronger currency, the authorities say they hope to increase the value of Yen through initiatives such as better industrial competitiveness.
It might not be Trump’s fast repairs that are fishing.
Japanese bank also cannot be called to rush to climb the tariff. Increased loan and inflation costs are pain points for voters, and important general elections appear in July.
“The Japanese side will say that BOJ is independent, and they do not try to manipulate currencies,” said Shoki Omori, head of the table strategy at Mizuho Securities.
“Besides, we are in the tightening cycle.”
Source: Reuters
