US, Japan reaffirm FX commitments, leave room for interventions

Core Viewpoint - The United States and Japan reaffirmed their commitment to market-determined exchange rates while agreeing that foreign exchange interventions should be reserved for combating excess volatility [1][3][4] Group 1: Exchange Rate Commitments - The U.S. Treasury Department and the Japanese Finance Ministry emphasized that exchange rates should be market determined and that excess volatility can adversely affect economic stability [3] - Both countries reconfirmed that they have avoided exchange rate interventions for competitive trade advantages, implicitly approving Japan's yen-buying actions in 2022 and 2024 as not being unfair manipulation [4] Group 2: Bilateral Relations - The latest agreement did not include new demands from the Trump administration regarding foreign exchange, providing Japan with some relief in navigating bilateral ties with the U.S. [2][7] - Finance Minister Katsunobu Kato indicated that the joint statement reflects discussions with U.S. Treasury Secretary Scott Bessent as part of broader trade negotiations [5] Group 3: Tariff Negotiations - The U.S. will reduce tariffs to 15% on most Japanese imports in exchange for Japan's $550 billion investment package directed towards the U.S., which includes government-backed loans and guarantees [6] - The foreign exchange market showed little immediate reaction to the joint statement [6]