Japan’s Takaichi: Priority is to strengthen economy through measures that bolster areas of competitive advantage

Japanese Prime Minister Sanae Takaichi stated on Friday that measures to bolster the economy would be the government's priority, with an emphasis on strengthening areas where Japan has a competitive advantage. With market turbulence affecting countries worldwide as well as Japan, she said the government would keep a close watch on developments and evaluate their potential impact.

What are Takaichi's key remarks?

Aware AI, chip shares dropping sharply, unsure if temporary or lasting.

Focus on measures to reinforce economy by enhancing areas with competitive edge.

Market turbulence impacting not only Japan but nations worldwide, so monitoring progress closely.

Aim to use proceeds from BoJ’s faster ETF sales to fund spending on key areas for Japan's economic security.

Proceeds from BoJ ETF sales reflect Japan's economic growth, should be used to promote further growth and a virtuous economic cycle.

Proceeds from BoJ's accelerated ETF sales can fund bonds to help government secure funds for public spending targeting public investment.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

How is USD/JPY trading?

USD/JPY is trading at 157.90 at the time of writing, a decline of 0.07% for the day.

Japanese Yen: frequently asked questions

Which factors shape the Japanese Yen's value?

Among the world's most actively traded currencies, the Japanese Yen (JPY) takes its broad direction from Japan's economic performance. More specific influences include the Bank of Japan's monetary policy, the gap between Japanese and US bond yields, and traders' appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control is part of the Bank of Japan's mandate, making its actions an important influence on the Yen. Direct intervention in currency markets has occasionally been used by the BoJ, usually to weaken the Yen. Such intervention remains infrequent, however, because of political concerns among Japan's main trading partners. Between 2013 and 2024, the BoJ's ultra-loose monetary policy widened the policy gap with other major central banks, weakening the Yen against its main currency peers. The subsequent gradual withdrawal of that ultra-loose policy has offered the Yen some support.

Why does the US-Japan bond yield gap influence the Japanese Yen?

By maintaining ultra-loose monetary policy over the past decade, the BoJ increasingly diverged from other central banks, most notably the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, benefiting the US Dollar relative to the Japanese Yen. The gap is now narrowing following the BoJ's 2024 decision to move gradually away from ultra-loose policy, alongside interest-rate cuts by other major central banks.

Why does changing risk appetite affect the Japanese Yen?

During periods of market stress, investors are more inclined to place funds in the Japanese Yen, which is widely regarded as a safe-haven investment because of its perceived reliability and stability. As a result, turbulent conditions are likely to lift the Yen against currencies viewed as riskier investments.