The United States and Japan reaffirmed their commitment to market-determined exchange rates, while also acknowledging the potential need for intervention to address excessive volatility, according to statements released in September 2025. This delicate balance – upholding the principle of market forces while leaving the door open for action – reflects a shared concern over currency fluctuations and their impact on economic stability.
A Joint Understanding on Exchange Rates
On , the U.S. Department of the Treasury and the Japanese Ministry of Finance issued a joint statement outlining their agreement to continue close consultations on macroeconomic and foreign exchange matters. The core tenet of this agreement is the belief that exchange rates should be market determined
, a principle repeatedly emphasized in recent discussions.
However, the statement also recognizes the potential for disruption. Both nations reconfirmed they have undertaken under the IMF Articles of Agreement to avoid manipulating exchange rates
but simultaneously acknowledged that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability.
This suggests a willingness to act, not to dictate exchange rates, but to prevent destabilizing swings.
Intervention as a Last Resort
The joint statement clarifies the circumstances under which intervention might be considered. It explicitly states that intervention should be reserved for combatting excess volatility and disorderly movements in exchange rates
, and that this tool would be considered equally appropriate for addressing excessively volatile or disorderly depreciation or appreciation.
What we have is a significant point, indicating a willingness to address both a strengthening and a weakening of their respective currencies if those movements are deemed disruptive.
the agreement extends to other financial activities. Both countries agreed that macroprudential and capital flow measures should not be used to target exchange rates for competitive purposes. Investments by entities like pension funds should continue to be driven by risk-adjusted return and diversification purposes, not targeting exchange rates for competitive purposes.
This reinforces the commitment to a market-based approach, even within broader economic policies.
Japan’s Assertive Stance
Japan, in particular, has signaled a stronger willingness to take action if necessary. Finance Minister Satsuki Katayama stated on , that Japan has a free hand
to take bold action
against currency moves that are not aligned with economic fundamentals. This statement, described as her strongest warning yet
to speculators, came after a weakening of the yen despite recent interest rate hikes by the Bank of Japan (BOJ).
Katayama attributed the yen’s weakness to speculative
forces, rather than underlying economic factors. She referenced the U.S.-Japan joint statement as providing a tacit green light
from Washington to act if needed, without requiring further negotiation. This suggests a level of coordination and understanding between the two countries regarding potential intervention.
The BOJ’s Role and Market Disappointment
The BOJ’s recent decision to raise borrowing costs to the highest level in 30 years, while intended to address inflation, ironically contributed to the yen’s decline. Governor Kazuo Ueda’s subsequent remarks, which some market participants found lacking in commitment to further rate hikes, triggered a slide in the currency. This highlights the complex interplay between monetary policy and exchange rates, and the challenges in managing both simultaneously.
Wall Street’s Vigilance
As of , Wall Street is closely monitoring for any indication of government intervention in the dollar-yen exchange rate. The Treasury Department’s actions are under particular scrutiny, reflecting the market’s sensitivity to potential shifts in currency policy. This heightened awareness underscores the importance of the U.S.-Japan relationship in influencing global currency markets.
Navigating a Changing Landscape
The reaffirmation of these commitments comes amidst a broader geopolitical context, including the potential for a second Trump administration. Analysis suggests that Japan is focused on sustaining its ties with the U.S. And strengthening international partnerships, even as it prepares for potential shifts in the global political landscape. The currency agreement is a key component of this strategy, demonstrating a commitment to stability and cooperation in a potentially volatile world.
The current approach represents a nuanced position. Both the U.S. And Japan are committed to allowing market forces to determine exchange rates, but they are also prepared to intervene if those forces become disruptive. This balancing act will likely continue to be a defining feature of their economic relationship, particularly as global economic conditions evolve and new challenges emerge. The emphasis on transparency in exchange rate policies and practices, as outlined in the joint statement, is also crucial for maintaining market confidence and preventing misunderstandings.
