Trump raises the issue of the weak yen with Takaichi... and Japanese bond yields reach record levels

Japanese Finance Minister Satsuki Katayama revealed on Friday that US President Donald Trump raised the issue of the weak yen during his meeting with Japanese Prime Minister Sanae Takaichi, an indication of growing common concern in Tokyo and Washington about the continued decline of the Japanese currency and its repercussions on inflation and bond markets.

Katayama said, during a regular press conference, that Trump expressed during the recent Japanese-American summit his concern about the weakness of the yen, adding that she was revealing the details of this dialogue for the first time after consulting with the Prime Minister’s Office.

She explained that Takaichi informed Trump, “as a general principle,” that the decline in the value of the yen to levels below its fair value represents a problem. Detailed disclosure of the two countries' leaders' discussions on exchange rates is unusual, given that governments usually avoid announcing the details of these talks.

Takaichi met Trump in New York on Tuesday, on the sidelines of the United Nations General Assembly meetings. She later said that the two sides held “timely” discussions on China, ahead of the scheduled summit between Trump and Chinese President Xi Jinping.

According to Katayama, the exchange discussions reaffirmed the common position between the United States and Japan that underpinned the coordinated intervention in the currency market on July 31, including a commitment to confront excessive volatility and disorderly movements in the yen price.

The Finance Minister added that she will continue close communication with US Treasury Secretary Scott Besent on a range of issues, including exchange markets.

The statements came at a time when the dollar continues to achieve gains against the yen and other major currencies, supported by strong US economic data, the tightening of the Federal Reserve and the rise in US Treasury bond yields.

The yen improved slightly after Katayama's statements, rising from about 158.60 yen to the dollar to about 158 ​​yen.

The weak yen poses an increasing challenge to the Japanese economy, because it raises the cost of energy imports, which have already increased due to the US-Israeli war on Iran, which fuels fears that inflation will exceed target levels. Washington is also monitoring developments for fear that the repercussions of the Japanese bond sale will spread to the US Treasury bond market.

Concern about the currency coincided with a continuing sharp rise in Japanese government debt yields. The ten-year bond yield rose on Friday to 3.115 percent, the highest level in about 30 years, affected by a strong selling wave in the American market.

Katayama declined to clarify whether the global rise in bond yields was discussed during Trump and Takaichi's meeting.

In another indication of the change in Japanese economic policy trends, Economic Revitalization Minister Minoru Kiyoshi, an ally of the movement that supports Takaichi’s economic policies, said that the phase of “Abenomics”-style stimulative policies, which relied on monetary easing and flexible fiscal spending, has ended.

His statements came after implicit criticism from Besant, who recently indicated that Japan's priority should be combating inflation rather than stimulating growth, in light of fears that some elements of previous economic policies will continue within the current government's directions.

Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking, said that Katayama and Kiyoshi's statements reflect escalating official concern about the weakness of the yen, especially after the Japanese authorities conducted checks on exchange rates in the market on Friday, a step usually seen as a possible indication of readiness to intervene.

These developments place the yen at the heart of Japanese economic policy calculations, as Tokyo faces at the same time inflation pressures, rising bond yields, and tightening monetary policy. Katayama's statements also show that currency movements have become the subject of direct attention at the highest political level in both Japan and the United States.

Japanese stocks continued their gains, on Friday, supported by the rise of artificial intelligence and chip companies and investors’ desire to buy stocks before dividends are due, at a time when government bond yields continued to rise to historic levels with increasing expectations of the Bank of Japan raising interest rates again.

The Nikkei index rose by 1.30 percent to close at 66,364.20 points, recording the fifth consecutive session of gains, so its weekly tally rose by slightly more than 2 percent despite the short trading week due to the holidays. The broader Topix index also rose 1.31 percent to 4,128.59 points.

Daisuke Hashizumi, chief strategist at Daiwa Securities, said that investors bought shares to obtain the right to dividends before the deadline on Monday, but demand for shares of chip companies was also one of the most prominent factors supporting the market.

Banks led the gains among the 33 sectors on the Tokyo Stock Exchange, with the sector index rising 4.08 percent, benefiting from the attractiveness of dividends and high returns. Mitsubishi UFJ Financial Group shares jumped 3.95 percent, and Sumitomo Mitsui Financial Group rose 3.59 percent.

In technology, “Tokyo Electron” rose 4.82 percent and “Advantest” rose 2.84 percent, to constitute the largest source of support for “Nikkei.” Epiden shares, which manufacture components for central processing units, also rose 4.2 percent after jumping 14.57 percent in the previous session.

On the other hand, SoftBank Group shares fell 3.18 percent after Oracle shares fell on Wall Street, following a report about potential delays associated with securing electricity for a huge data center in New Mexico. SoftBank, along with Oracle and OpenAI, participates in the “Stargate” artificial intelligence infrastructure project.

The rise was characterized by relative breadth, as 171 Nikkei component stocks rose, compared to a decline of 51 stocks and the stability of three stocks.

In parallel, the wave of selling government bonds continued. The ten-year bond yield rose 4 basis points to 3.115 percent, a level not recorded since August 1996, while the five-year bond yield rose to a record level of 2.405 percent.

The two-year bond yield, the most sensitive to monetary policy movements, reached 1.92 percent, the highest since April 1995, while the 40-year bond yield rose to 4.255 percent.

These moves come after the Bank of Japan last week raised the interest rate to 1.25 percent, the highest level in 31 years. Barclays Securities Japan analysts said that the weakness of the yen, continued expectations of interest hikes, escalating concerns about financial discipline, and rising external yields may continue to push bond yields higher.

In a remarkable shift within the debt market, data from the Japanese Securities Dealers Association showed that local investors bought government bonds with coupons worth 21.7 trillion yen, about $137 billion, between April and August, equivalent to 89 percent of total purchases for the entire fiscal year 2025.

Domestic demand was focused on medium-term bonds, purchases of which reached 12.7 trillion yen in five months, already exceeding 9.1 trillion yen during the entire previous fiscal year.

In contrast, purchases by foreign investors fell sharply to 2.8 trillion yen, compared to 32.8 trillion yen in fiscal year 2025. Foreigners turned into net sellers of medium-term bonds worth 1.9 trillion yen.

Friday's moves reveal a broad realignment within Japanese markets: AI and dividends are supporting stocks, while higher yields make bonds more attractive to the domestic investor. At the same time, rising borrowing costs, a weak yen, and expectations of further monetary tightening remain major factors determining the direction of Japanese assets over the coming period.