Japan’s next finance minister could unsettle the yen bears

Written by: Leika Kihara and Makiko Yamazaki

TOKYO (Reuters) – The appointment of Satsuki Katayama as Japan’s next finance minister could give markets a chance to reconsider pushing the yen to very low levels, but it could also help the country’s new leader find new ways to finance bold economic stimulus plans.

Japan’s likely next prime minister, Sanae Takaichi, has finalized a plan to appoint Katayama as finance minister, which would make her the first woman to hold the post, local media reported on Tuesday. The report briefly pushed the dollar to around 150.50 yen before recouping some losses.

Katayama, a 66-year-old veteran lawmaker and former finance minister bureaucrat, said in an interview with Reuters in March that Japan’s economic fundamentals indicate that the real value of the yen is closer to 120-130 per dollar.

These comments were made as the yen fell to its lowest levels in recent years, around 150 against the dollar, on market expectations that the Bank of Japan would move slowly on monetary tightening. The yen is currently trading around 151 per dollar.

“Given his past remarks, Katayama appears to be in favor of reversing the weak yen. Markets may have viewed this as similar to U.S. Treasury Secretary Scott Bessent’s views,” said Akira Moroga, chief market strategist at Aozora Bank.

Katayama declined to comment Tuesday.

Takaichi will be voted in as Japan’s first female prime minister on Tuesday, marking a symbolic shattering of the glass ceiling in a country where men still hold the most power.

CLEAR, DETERMINED, FROM WITHIN THE MINISTRY

Katayama, a former finance ministry bureaucrat well-versed in financial affairs, has a knack for monetary diplomacy and befriends former and current executives who oversee exchange rate policy at the ministry.

He is known for his candor and effective decision-making ability; This contrasts with incumbent finance minister Katsunobu Kato, who rarely goes off script and keeps a low profile.

In a March interview, Katayama said that US President Donald Trump’s administration did not want the yen to weaken too much against the dollar.

In fact, Bessent said last week that the yen would find its own level if the central bank followed the “correct monetary policy” in its latest move against the slow pace of BOJ interest rate increases.

Katayama’s appointment comes at a time when living costs are rising due in part to high import prices caused by yen weakness. These factors hurt households and the ruling party’s approval ratings.

Katayama, a former bureaucrat, knows the inner workings of the finance ministry’s draft budget well.

Although his background at the finance ministry has encouraged him to call for fiscal discipline, some analysts say Takaichi could use his expertise to help find ways to fund bold spending plans.

“I’m not sure whether Katayama is an advocate of expansionary fiscal policy, but his views are probably in line with Takaichi’s,” said Hiroyuki Machida, director of Japan FX and commodities sales at ANZ.

“If Takaichi wants to expand financial spending, he knows how to find sources of income,” he said. “Personally, I think this appointment will accelerate the ‘Takaichi trade’.”

Takaichi’s challenge will be to maintain expansionary fiscal policy without causing an undesirable decline in the yen. It is not known whether the BOJ will approve the plan to gradually increase interest rates from the current level of 0.5%.

In an interview in March, Katayama said there was limited what monetary policy or foreign exchange intervention could do to rein in declines in the yen, and instead called for steps to boost underlying growth.

Markets will focus on Katayama’s views on whether the BOJ will continue to raise interest rates, which are still low. This could increase Japan’s debt servicing costs but could help keep sharp declines in the yen in check.

“Katayama is a former finance minister bureaucrat and has a very good knowledge of the ministry’s affairs,” said Eiji Douke, chief fixed income strategist at SBI Securities. “He’s probably neutral on fiscal and monetary policy.”

(Reporting by Leika Kihara and Makiko Yamazaki; Additional reporting by Yoshifumi Takemoto; Editing by Sam Holmes)