U.S.-Japan Trade Negotiations

TOKYO (Reuters) – U.S. President Donald Trump’s desire for a stronger yen against the dollar is almost certain to figure into trade negotiations with Japan underway in Washington. Analysts say any effort to shift the currencies is fraught with risks for both sides.

Japan’s chief negotiator, economy minister Ryosei Akazawa, got talks started on Wednesday by meeting with U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson. Trump made a surprise appearance.

The White House put the exchange rate unequivocally on the agenda after Trump last month accused Tokyo of pursuing a policy to devalue the yen, giving the Japanese an unfair trade advantage.

Akazawa said the yen didn’t figure into Wednesday’s negotiations, but currency issues are typically a topic for Finance Minister Katsunobu Kato, who will have talks with Bessent when he arrives next week for IMF and World Bank meetings.

Analysts warn that any deal on the dollar’s value versus the yen is inherently tricky. An attempt by Tokyo to force the Bank of Japan into speeding up rate hikes could push up the yen, but it risks snuffing out Japan’s fledgling economic recovery and undermines central bank independence.

Japanese officials could also sell U.S. dollars for yen, but that would mean withdrawing billions from U.S. debt investments at a time of market fragility.

Citigroup sees Japan as a prime target if the Trump administration aims at a coordinated devaluation of the dollar for improved competitiveness, a proposal dubbed the “Mar-a-Lago Accord”. Citigroup currency strategist Osamu Takashima indicated that while this risk isn’t perceived as concrete now, Japan could be a target due to its sizeable foreign currency reserves and undervalued currency.

With the U.S. as Japan’s biggest export destination, automobile shipments account for about 28% of Japan’s exports there. Japan has been adversely affected by Trump’s 25% duty on cars, causing a slump in the Nikkei share average.

Akazawa offered few details of the discussions but noted Trump said getting a deal done with Japan was a “top priority”.

MAR-A-LAGO ACCORD?

The yen has strengthened from its lows against the dollar. Last year, the dollar reached nearly 162 yen the highest since 1986 after the Plaza Accord when Japan, Britain, Germany, and France agreed to devalue the dollar.

Recently, the dollar dipped below 142 yen due to fears that Trump’s tariffs may trigger a U.S. recession. Speculative bets on yen strength are at record levels.

Trump and Bessent should be cautious before making strong demands for dollar weakening. Unlike in 1985, international investors hold nearly $15 trillion in U.S. debt. The recent Treasury rout called this assumption into question, though sentiment is showing signs of recovery.

Yunosuke Ikeda of Nomura warned that trying to talk down the dollar presents a “very dangerous strategy” right now, even if there is a belief in the long-term benefits of a weaker currency.

While the yen is weak by historical standards and Tokyo desires a stronger currency, authorities plan to improve its value through better industrial competitiveness—likely not the quick fix Trump seeks.

The Bank of Japan cannot be pressed to hasten rate hikes due to rising borrowing costs and looming upper house elections in July. Shoki Omori from Mizuho Securities noted Japan will assert the BOJ’s independence, emphasizing they do not intend to manipulate the currency as the country is in a tightening cycle.