U.S., Japan Finance Chiefs Agree Dollar-Yen Rate Reflects Fundamentals

During the G7 finance ministers meeting in Banff, U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Katsunobu Kato agreed that exchange rates should be determined by market fundamentals and that the current dollar-yen rate reflects these fundamentals. Both sides avoided discussing specific currency targets or exchange rate levels, reaffirming a shared principle that currency rates should be market-driven, thereby separating currency issues from direct trade negotiations. The discussions also covered trade concerns, with Kato expressing Japan's worries about the impact of U.S. tariff policies on the global economy and financial markets, emphasizing that trade imbalances should be addressed by boosting domestic demand rather than tariffs. Despite President Trump's focus on the U.S. trade deficit and allegations that Japan maintains a weak yen to the U.S.'s disadvantage, the U.S. Treasury indicated no pressure was applied on Japan to strengthen its currency during the talks. Japan's yen has strengthened about 9% this year, which remains a concern for Japanese policymakers due to inflationary pressures on imports and consumption. The finance chiefs agreed to continue close and constructive talks, with the G7 aiming to issue a joint statement on free trade and economic cooperation.