U.S. President Donald Trump stated that he warned the leaders of Japan and China against devaluing their currencies, arguing that such actions put U.S. manufacturers at a disadvantage. His remarks came as the U.S. implemented 25% tariffs on imports from Mexico and Canada on Tuesday, while also doubling tariffs on Chinese goods to 20%, escalating global trade tensions.
Market Reaction and Yen Strength
Trump’s comments triggered market volatility, leading to a nearly 2% drop in Japan’s Nikkei 225 index as the yen appreciated. The currency briefly climbed to 148.60 per dollar on Tuesday, up from around 150 on Monday.
“I’ve called President Xi, I’ve called the leaders of Japan to say you can’t continue to reduce and break down your currency,” Trump said at the White House. He added that instead of repeated complaints, the U.S. could offset trade disadvantages with tariffs.
Japan’s Response and BOJ Policy Implications
Japanese Finance Minister Katsunobu Kato responded by stating that Japan is not deliberately weakening the yen and has confirmed its currency policy stance with G7 nations and U.S. Treasury Secretary Scott Bessent.
Prime Minister Shigeru Ishiba also denied that Japan was pursuing a currency devaluation strategy, emphasizing that there had been no direct communication from Trump regarding exchange rates.
Trump’s renewed criticism of Japan’s currency policies may complicate the Bank of Japan’s (BOJ) monetary policy decisions. While a weak yen benefits exporters, it raises import costs, impacting consumer spending. Analysts believe Trump’s stance could pressure the BOJ to accelerate interest rate hikes.
China and Japan’s Currency Strategies
Trump had previously accused Japan and China of currency manipulation during his first term, with a series of U.S.-China tariff escalations contributing to a 12% depreciation of the Chinese yuan between 2018 and 2020.
More recently, China has taken steps to stabilize its currency. Analysts suggest that both China and Japan are now working to prevent excessive currency weakening rather than deliberately devaluing.
“China and Japan are not keeping their currencies cheap, and in fact, they are doing the opposite,” said Chang Wei Liang, currency strategist at DBS.
BOJ Rate Hike Expectations
Japan’s policymakers are wary of Trump’s influence on market sentiment, particularly regarding yen volatility. The BOJ, which ended a decade-long stimulus program last year, has signaled a shift toward tighter monetary policy, with inflation exceeding its 2% target for nearly three years.
Some analysts believe Trump’s criticism of a weak yen may increase expectations for additional rate hikes. “Japan can’t conduct yen-buying, dollar-selling intervention at current yen levels, so the pressure will pile on the BOJ to hike rates,” said Hiroyuki Machida, director at ANZ.
The BOJ raised borrowing costs to 0.5% in January and is expected to hike rates again, potentially reaching 0.75% by the third quarter of 2025.
Trade and Monetary Policy at a Crossroads
Trump’s remarks on currency manipulation and tariffs have added uncertainty to global markets, particularly for Japan and China. With the BOJ under pressure to navigate interest rate decisions while maintaining economic stability, the coming months will be crucial for Japan’s monetary policy and international trade dynamics.
