President Donald Trump said Monday that he warned Japan and China against devaluing their currencies, arguing that such moves put American manufacturers at a disadvantage. The remarks, which came as the U.S. imposed new tariffs on Mexico, Canada, and China, added to market uncertainty and drove the Japanese yen higher.
"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. "You can't do it because it's unfair to us. It's very hard for us to make tractors, Caterpillar here, when Japan, China and other places are killing their currency, meaning driving it down."
The comments rattled financial markets, with Japan's Nikkei 225 index tumbling nearly 2% on Tuesday. The yen surged to 148.60 per dollar at one point, up from 150 on Monday, before stabilizing around 149.20 later in the day. The sudden shift fueled speculation that Trump's stance could force the Bank of Japan (BOJ) to accelerate interest rate hikes.
Japanese officials swiftly pushed back against the accusations. Prime Minister Shigeru Ishiba told lawmakers that Japan was not pursuing a "currency devaluation policy" and had not received any direct communication from Trump on the matter. Finance Minister Katsunobu Kato emphasized that Tokyo's stance on foreign exchange policy had been discussed with the U.S. at G7 and bilateral meetings, including with Treasury Secretary Scott Bessent in January.
"Japan has confirmed its basic stance on currency policy" with G7 countries and the United States, Kato said at a news conference. He added that Japan's recent market interventions were aimed at stabilizing the yen rather than weakening it.
Trump's criticism reignited concerns over Washington's trade and currency policies, particularly as tariffs remain a central tool of his administration. "Instead of complaining repeatedly over the phone over such attempts, the United States could make up for the disadvantage its manufacturers suffer by imposing tariffs," Trump said. "And the way you solve it very easily is with tariffs."
Japan's central bank has been navigating a delicate balance, having raised interest rates to 0.5% in January-the first increase in 17 years-while trying to manage inflation and the yen's volatility. Hiroyuki Machida, director of Japan FX and commodities sales at ANZ, suggested that Trump's comments might push the BOJ toward further hikes. "Trump's comments give investors reason to buy yen" on bets the BOJ could raise interest rates twice this year, he said.
The broader market reaction underscored fears that the renewed trade tensions could complicate global economic stability. The yuan, which had been gradually strengthening, also edged higher as China's central bank continued its efforts to stabilize the currency. Chang Wei Liang, a currency strategist at DBS, noted that "China and Japan are not keeping their currencies cheap, and in fact they are doing the opposite."
Despite Tokyo's reassurances, Japanese businesses remain wary. A weaker yen has supported exports but has also driven up import costs, fueling inflation and straining household budgets. Consumer prices have been running at 4%, and with a national election approaching this summer, economic concerns are a growing political issue for Ishiba's government.
