Recently, influenced by the economic conditions of the United States and Japan and the monetary policies of both countries, the Japanese yen has dropped to its lowest point in 34 years against the US dollar. The international market has reacted strongly to this development, with US Republican presidential candidate Trump expressing concern over the depreciation of the yen and its potential impact on the US economy. As the likelihood of Trump’s election increases, Japan, like other allied countries, has been actively engaging with Trump.
On April 26, in the New York foreign exchange market, the yen temporarily fell to 158.44 yen to the US dollar, the lowest level in 34 years since May 1990.
The depreciation of the yen against the US dollar is influenced by two main factors. One is the Bank of Japan’s announcement to maintain its current monetary policy, and the other is the expansion of the US Personal Consumption Expenditures (PCE) price index for March compared to February.
Furthermore, due to strong inflationary pressures, the market predicts that the Federal Reserve (FRB) will postpone interest rate cuts, which also contributes to the depreciation of the yen against the US dollar, primarily due to the significant interest rate differential between the two currencies.
Since the beginning of the year, the yen has depreciated by 10%, making it the worst-performing currency among the G10 nations.
On the morning of April 26, as the market awaited the Bank of Japan’s decision, the exchange rate was hovering around 155 yen to the US dollar. However, following the Bank of Japan’s announcement to maintain its current monetary policy at noon, the rate quickly surpassed 156 yen, and during the Bank of Japan’s press conference in the afternoon, the yen dropped further to about 156 yen per dollar.
During its monetary policy meeting on the 26th, the Bank of Japan unanimously decided to maintain its practically zero interest rate policy, keeping the short-term interest rate target at the current 0% to 0.1%. The bank also decided to continue purchasing long-term government bonds as decided in the March meeting.
At 3:30 pm on the same day, Bank of Japan Governor Kazuo Ueda stated during a press conference that the recent depreciation of the yen has not had a “significant impact” on prices. As the central bank did not show a proactive attitude towards further rate hikes, the yen continued to depreciate during the press conference.
Due to the interest rate differential between the yen and the US dollar, foreign exchange markets overseas continue to experience historic depreciation of the yen and appreciation of the US dollar. Some believe that the comments made by the Bank of Japan Governor could lead to further depreciation of the yen.
In addition, in the economic and price outlook released by the Bank of Japan after the meeting, the inflation rates for 2024 and 2025 have been revised upward, reflecting factors such as the rise in oil prices and increased electricity rates; the inflation rate for 2025 has been revised from the previous 1.8% to 1.9%. For the first time, the projected inflation rate for 2026 is also the same as that of 2025, at 1.9%.
During the March meeting, the Bank of Japan believed that the probability of achieving the “2% inflation rate” target had increased, leading to the removal of the negative interest rate policy. The Bank of Japan will continue to monitor economic conditions and the trend of rising prices to identify the timing for rate hikes. Currently, the Bank of Japan still assesses the economic situation as a “slow recovery.”
In response to the yen’s continuous depreciation, industry experts in Japan familiar with the foreign exchange market expressed concerns, stating that “the current situation is that the yen continues to decline. The Japanese government and the Bank of Japan may intervene at any time.”
On the same day, Japanese Finance Minister Shunichi Suzuki stated at a press conference following a cabinet meeting that the Japanese government is “paying attention to market trends and will take all measures,” hinting that the government might intervene in the market again.
On April 17, the finance ministers of the United States, Japan, and South Korea conducted consultations on the exchange rates of the three countries and issued a joint statement, expressing close consultations on the trends in the foreign exchange market.
Japan, a country with scarce natural resources and relies heavily on trade, has long been supported by exports of products such as automobiles and electronics. By the year 2000, Japan had mostly recorded trade surpluses; however, in recent years, factors such as rising prices of oil and minerals, as well as the widening “digital deficit” from utilizing overseas digital services, have led to Japan consistently running trade and service deficits.
In this process, for trade-oriented Japan, changes in the exchange rates of sovereign currencies naturally have an impact on Japan’s trade and economy.
In the first quarter of 2024, Honda, a Japanese car company, saw a 60% increase in sales in North America compared to the previous period, with profits reaching 1.25 trillion yen (approximately 78.94 billion US dollars), reaching a historical high. In addition to normal operational factors, this performance was also boosted by the depreciation of the yen.
Initial projections for the yen exchange rate in March this year were 142 yen to the US dollar, but on March 22, the yen exchange rate in the Tokyo foreign exchange market was 151 yen to the dollar. This difference naturally resulted in additional profits.
In January 2024, the leading Japanese car maker Toyota’s total assets surpassed the NTT during the economic bubble period, reaching a new high in Japanese history. This was also attributed to the yen’s depreciation contributing to increased profits.
Furthermore, other export-oriented manufacturing industries in Japan have also benefited from the depreciation of the yen. On the other hand, companies in Japan that rely heavily on imports face operational challenges due to the depreciation of the yen.
Historically, fluctuations in exchange rates, including the yen, due to changing circumstances, are normal economic phenomena. However, business owners prefer relatively stable international exchange rates as they are conducive to long-term operations; the ideal exchange rate for Japanese entrepreneurs is ¥130 to the US dollar.
The sharp depreciation of the yen has brought benefits to Japanese companies, especially those relying on exports such as automotive industries, impacting Japan’s largest trading partner, the United States.
Former US President Donald Trump quickly reacted to the rapid depreciation of the yen, expressing deep concern and labeling it as a “disaster” that would harm US manufacturers, forcing them to move factories overseas.
On the day when the USD/JPY exchange rate reached a 34-year high of 158.44, Trump shared his views on Truth Social. He mentioned, “During my presidency, I spent a lot of time telling Japan and China that they can’t do this.”
He emphasized that while a significant increase in the US dollar might sound good, it would be a disaster for American manufacturers and others as they would struggle to compete, leading to loss of business or relocation of factories.
With the high US dollar interest rates attracting a large influx of foreign investment funds into the United States, the exchange rates of the US dollar against Asian currencies such as the South Korean won and the Chinese yuan have also generally risen.
According to US media reports, Trump’s advisers are studying relevant policies on reducing the independence of the Federal Reserve (FRB) to enable Trump to participate in shaping financial policies if re-elected.
Trump has explicitly expressed his preference for low-interest rates and the need to rectify the trade deficit caused by the appreciation of the US dollar. If these ideas come to fruition, it could potentially compel the FRB to lower its policy rates.
The current FRB chairman, Jerome Hayden Powell, was nominated and appointed by Trump during his tenure. Powell’s inability to lower interest rates led Trump to view him as incompetent. Powell’s term ends in May 2026, and he has indicated that he will not seek reappointment.
As the possibility of Trump being re-elected as US President increases, many of the United States’ allies and partner countries around the world are preparing for this scenario and engaging with Trump in various ways. Some national leaders are even willing to risk offending the current US President to directly engage with Trump.
Recently, Saudi Arabian Crown Prince Mohammed bin Salman had a phone call with Trump; Hungarian Prime Minister Viktor Orbán and Polish President Andrzej Sebastian Duda have met with Trump in the past few weeks; and British Foreign Secretary David Cameron met with Trump at his Mar-a-Lago estate in Florida this month.
In Japan’s political and media circles, a phrase has been circulating for the past six months: “If Trump is re-elected…”. Political and economic sectors are also gearing up for this possibility.
On April 23, at the Trump Tower in New York, Taro Aso, the Vice President of Japan’s Liberal Democratic Party, met with Trump. Trump personally praised Aso to reporters, saying, “Mr. Aso is not only respected in Japan but also globally. We have known each other through my dear friend Shinzo (nickname for Shinzo Abe). He is someone I like.”
Trump and Aso talked for about an hour, discussing topics such as security in the Indo-Pacific region, the importance of the US-Japan alliance, as well as issues concerning China and North Korea. Trump also commended Japan’s efforts to increase defense spending.
Japan had been in contact with Trump’s team ahead of the November election, partly out of concern that a Trump victory might lead to conservative trade policies affecting the Japanese economy and the strong defense relationship between the US and Japan.
As Japan faces the possibility of Trump being re-elected, the Japanese government, like other allied countries, is reaching out to Trump in various ways to build trust, avoid trade conflicts, and preserve alliance relationships.