Former Senior Official of Japan's Ministry of Finance: US and Japan Will Jointly Promote the Appreciation of the Yen, Japan Unlikely to Sell US Treasury Bonds

On Friday, Mitsuhiro Furusawa, a former Japanese vice finance minister, stated that amid the narrowing trend of the interest rate gap between the US and Japan, the yen is expected to continue appreciating against the US dollar, potentially reaching around 135-140 yen per US dollar by the end of the year.

Furusawa previously served as a deputy managing director at the International Monetary Fund (IMF) and as Japan's vice finance minister for international affairs, making him the top official responsible for exchange rate matters in Japan. Currently, he serves as the president of the Sumitomo Mitsui Banking Corporation's Global Financial Affairs Research Institute, maintaining close ties with current central bank policymakers in Japan and overseas.

Yen Expected to Continue Appreciating

The market widely speculates that Trump, who previously accused Japan of currency manipulation, will pressure the Japanese government to help weaken the US dollar against the yen to give US exports a trade advantage. However, Furusawa stated that it remains unclear whether the Trump administration will explicitly adopt a weak dollar policy.

"It is not easy for policymakers to intentionally push down the dollar," Furusawa said. "After clearly stating that tariffs are the main tool (for negotiations), I believe the US government does not need to rely too much on currency to achieve its goals."

Nevertheless, Furusawa noted that the US may wish to avoid further appreciation of the dollar to prevent harm to exports. Meanwhile, Japan aims to prevent excessive yen weakness from driving up inflation.

"Therefore, their intentions in this regard are aligned. This suggests that the yen may gradually appreciate," he said.

Additionally,the divergence in monetary policy directions between Japan and the US will also support the yen.Amid widespread market concerns about a US recession triggered by tariff shocks, there is speculation that the US Fed's next move could be an interest rate cut, while the Bank of Japan (BOJ) is currently considering further rate hikes.

BOJ Governor Kazuo Ueda recently stated that if Japan's economic conditions improve and inflation continues to meet the 2% target, the central bank will proceed with rate hikes. However, he also hinted that rate hikes would need to wait until the impact of Trump's tariffs becomes clearer.

"If Japan successfully reaches a broad trade agreement with the US—possibly at the G7 summit this month—it will reduce uncertainty," Furusawa said. Once real wages in Japan rise, it will support consumption.

"If we see these positive developments, the BOJ may raise interest rates again in the second half of the year," Furusawa said, adding that the yen "may appreciate to around 135-140 yen per US dollar by the end of the year."

As of press time this Friday, the US dollar-Japanese yen exchange rate was hovering around 144.11.

Furusawa said that the Bank of Japan may ultimately want to raise its short-term policy interest rate target, currently at 0.5%, to above 1%, though success is uncertain.

Japan may struggle to use US debt as a bargaining tool

Japan is continuing trade negotiations with the US, with a focus on making progress on automobile tariffs. According to Japanese media reports, the two sides may seek to reach an agreement before the G7 summit on June 15-16.

Last month, Japanese Finance Minister Shunichi Suzuki said that Japan might use its holdings of over $1 trillion in US Treasury bonds as leverage in trade negotiations with the US government, a statement that caused a stir.

However, Furusawa believes that as a negotiating strategy, it is reasonable for Japan to claim that "all options are on the table." But it is doubtful whether Japan can actually use US debt as a bargaining tool.

He explained that part of the reason is that if Japan were to actually sell off US Treasury bonds, it could anger Trump and disrupt trade negotiations, potentially backfiring.