Yen Faces More Volatility Risk Before Finance Minister Talks

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Yen Faces More Volatility Risk Before Finance Minister Talks

foreign exchange :: 2025-04-17 :: source - bloomberg

By Erica Yokoyama

(Bloomberg) -- The yen may have dodged being pulled into the US-Japan tariff talks for now, but it’s likely to come up in future negotiations, making it vulnerable to more volatility.

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The currency fell Thursday after Japan’s chief trade negotiator Ryosei Akazawa said foreign exchange wasn’t brought up in his discussions with President Donald Trump and other US officials. The topic should be handled by Finance Minister Katsunobu Kato and Treasury Secretary Scott Bessent, he said.

Such a meeting could happen as soon as next week during the International Monetary Fund gatherings, which Kato and Bessent are expected to attend. Any signal that the US is eyeing a weaker dollar could quickly send the yen stronger again.

“The upcoming Kato-Bessent talks are likely to carry more weight for FX markets,” Yusuke Matsuo, senior market economist at Mizuho Securities, said in a report. “Depending on how the negotiations unfold, there’s a risk that today’s moves could reverse. Also, we should be prepared for a scenario in which the yen strengthens.”

The yen weakened 0.6% on the day to trade at around 142.78 per dollar in the London session. The Japanese currency’s one-month implied volatility has eased after touching the highest since January 2023 last week.

Still, option skews — known as risk reversals — indicated that demand for options to hedge against a drop in dollar-yen in the coming month remained stronger than for options to bet on an increase.

“The dollar bounded back as traders unwound yen-long positions following Akazawa’s comments,” said Yujiro Goto, head of FX strategy at Nomura Securities Co. “Still, the market seems set on testing the 140 per-dollar level for the yen,” he added, citing continued dollar weakness amid lingering uncertainty around the US economy.

The market moved even though both governments had earlier agreed that currency matters would be handled primarily between Kato and Bessent at a later date.

“I don’t have any memory of Japan ever attempting to guide the yen lower or anything else of that nature,” Akazawa said, addressing past accusations from Trump insinuating that Japan tried to gain an edge in trade by weakening its currency.

--With assistance from Masahiro Hidaka and Masaki Kondo.

(Adds a chart and moves in implied volatility in fifth and sixth paragraphs. An earlier version of this story was corrected to show direction of the dollar in Nomura comment)