Yen on the march as Plaza Accord 2.0 debate grows

Japan Times

22-04-2025

While Japan and the United States have busied themselves with trade-war minutia — from bowling-ball tests to soybean purchases — the elephant in the room has quietly made itself known. The value of the yen is suddenly front and center.
The United States has claimed that Japan's currency is undervalued, with some people in the administration of President Donald Trump calling for a Plaza Accord 2.0. This is in reference to the 1985 Plaza Accord, an agreement between the U.S. and a number of other countries, Japan included, that led to a dramatic strengthening of the yen.
Japan is unimpressed. It insists that the value of the currency should be decided by the markets and that governments shouldn't interfere. So far, negotiators discussing the tariffs placed on Japan by Trump have managed to avoid discussing the yen at all or in any depth, gingerly kicking the can down the road on a highly contentious issue.
This week, the question of the currency's value became harder to ignore.
In trading on Tuesday, the yen hit ¥139.9 to the dollar, a seven-month high, while Finance Minister Katsunobu Kato left Japan for Washington on the same day. He is Japan's point person on currency issues and is expected to meet with U.S. Treasury Secretary Scott Bessent while in the United States.
Many investors, analysts and policymakers are keenly watching the yen, trying to find meaning in its recent moves, and are eager to hear whether the United States brings up the currency issue when Kato is in Washington, and if it does, what it really wants.
Some analysts in Japan pour cold water on the idea of another Plaza Accord type of agreement, noting the difficulty of controlling the market and the risk of doing economic damage by even trying.
'Since the issue of the exchange rate has been attracting so much attention in the media, it may come up in the meeting, but I personally think it won't,' said Maki Ogawa, chief analyst at Sony Financial Group.
Ogawa said it would be risky for the United States and Japan to meddle in the market.
'The exchange rate might not necessarily stay at levels they would want. When coordinated intervention takes place, the financial markets tend to overshoot,' she said, adding the intervention under the Plaza Accord couldn't really control the market.
An intervention of this kind might weaken the dollar against not just the yen but also other currencies, which could lead to an increase in import prices and higher inflation, Ogawa added.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, believes that the two countries will probably not go into detail this time, as the trade negotiations have just begun.
Kato and Bessent will likely just confirm that close communications regarding the currency markets will be maintained, Ichikawa wrote in a report released on Monday.
'I don't think Japan will voluntarily bring it up as an agenda item, so the question is what the United States would propose if it puts the issue on the table,' said Soichiro Tateishi, an economist at the Japan Research Institute.
Tateishi said Plaza Accord-type coordinated intervention is highly unlikely, as the strong dollar is not a real problem for many countries, while the recent geopolitical situation makes it tough to successfully execute joint initiatives.
Even if Japan and the United States jointly intervene in the market, the impact would probably be insignificant, Tateishi said.
One method of addressing the yen's value does make sense to some analysts. They say that adjusting monetary policy might be effective.
'There will be a question whether the Bank of Japan would really raise rates under these circumstances where growth will likely slow,' Tateishi said.
'But when just looking at the currency's underlying trend, a rate hike would likely change it more than randomly coordinated intervention by the two countries.'
Ogawa also said the rate hike approach would carry less risk compared to joint intervention, while it's not that hard for the BOJ to justify a rate increase since wages are rising.
Japan is also dealing with relatively high inflation, so some yen appreciation would be a plus for households.