Japanese Finance Minister: Sanae Takaichi is not a "reflationist" and highly respects the independence of the central bank

The Japanese government is focusing its efforts on trying to reverse the market’s entrenched perception that the Satsuki Katayama administration is pressuring the Bank of Japan and pursuing an ultra-loose monetary stance.

Japanese Finance Minister Satsuki Katayama stated on Friday that Prime Minister Sanae Takaichi is not a “reflationist” and has great respect for the central bank’s independence, adding that Takaichi herself has repeatedly asked her to clarify this stance to overseas investors, saying, “We want to make sure there is no misunderstanding on this point.”

Katayama also reiterated her willingness to intervene in the foreign exchange market to support the yen, while downplaying market concerns over the recent rise in Japanese government bond yields.

These statements come after the Bank of Japan raised interest rates for the third time last week. However, both central bank policy board members nominated by the Takaichi administration voted against the move, which has further reinforced the market’s perception that the Japanese government prefers to slow the pace of rate hikes.

Meanwhile, the yen’s exchange rate against the US dollar has fallen below pre-rate hike levels, and Japanese government bond yields have climbed to their highest since the mid-1990s, intensifying market pressures.

Katayama’s clarification was not an isolated instance. Economic Growth Strategy Minister Minoru Kiuchi also stated earlier in the day that the Japanese economy no longer needs reflation policies.

Kiuchi is considered the most pro-reflation member in the cabinet, but his remarks were highly consistent with Katayama’s, highlighting the government’s intent to present unified messaging to address concerns over government meddling in central bank policy.

Some market observers view Takaichi as the policy heir to the late former Prime Minister Shinzo Abe, who pushed the central bank’s loose monetary and flexible fiscal stance to break decades of economic stagnation in Japan.

Katayama responded that, with inflation returning to Japan, the policy environment today is fundamentally different from Abe’s era and the frameworks of the past cannot be simply applied to the present.

Katayama said that Takaichi “deeply respects the central bank’s independence,” daily monetary policy decisions rest with the Bank of Japan, and the government intends to avoid creating any impression of interfering with central bank policy.

Katayama revealed that she had recently met in Tokyo with multiple American financial figures, including billionaire investor Stanley Druckenmiller and JPMorgan CEO Jamie Dimon.

When discussing the meetings, she admitted that some investors still believe the Takaichi government is constraining the Bank of Japan’s room for maneuver.

This very concern prompted Katayama, during this exclusive interview, to proactively and repeatedly emphasize the government’s respect for the central bank’s independence.

On the exchange rate issue, Katayama reaffirmed her readiness to intervene in the market, and stated she spoke again with US Treasury Secretary Bessent on Friday.

According to a summary of the call published by Japan’s Ministry of Finance, both sides exchanged views on the latest financial market trends and once again confirmed their shared concern about the yen being undervalued, as well as their intention to further deepen cooperation. Bessent later wrote on X that the two “discussed the desirability of a strong yen reflecting Japan’s robust economic fundamentals.”

Earlier in the day at a press conference, Katayama revealed that Trump, in talks with Takaichi in New York this week, expressed concern about the weak yen. However, she added that his remarks stopped there and the two did not explore in depth what further measures should be taken.

Regarding the recent rapid rise in bond yields, Katayama considers this to be a global phenomenon, partly reflecting increased private sector funding needs driven by the artificial intelligence investment boom, and expects this surge to be temporary.

She also pointed out that rising interest rates actually mean increased deposit interest income for Japanese households, and unlike in the United States, where people hold more stocks, Japanese savings are more often kept in banks, meaning the public could benefit from this development.