By Takaya Yamaguchi, Leika Kihara and Makiko Yamazaki
TOKYO (Reuters) -Japan is “deeply concerned” about global economic fallout from U.S. President Donald Trump’s trade tariffs, Finance Minister Katsunobu Kato said on Thursday in the government’s strongest warning yet as the two nations began trade talks.
In an interview with Reuters in Tokyo hours after the talks began in Washington, Kato also voiced concern over recent volatile market moves triggered by Trump’s tariff announcements, saying they could hurt Japan’s economic recovery.
“The recent U.S. tariff measures affect various industries and heighten uncertainty. We’re deeply concerned they could affect Japan’s economy, as well as the global economy, through various routes such as trade and financial markets,” said Kato, who plans to go to Washington next week for meetings of the International Monetary Fund and the Group of 20.
Kato is also expected to meet separately with Treasury Secretary Scott Bessent to continue the talks begun by Prime Minister Shigeru Ishiba’s top tariff negotiator Ryosei Akazawa. Trump unexpectedly joined those talks, which included Bessent.
“There’s a risk of exerting downward pressure on Japan’s economy,” Kato said of the U.S. tariffs and the ensuing market volatility, in his first media interview since Trump announced “reciprocal” tariffs on many nations on April 2.
Kato said he will “closely communicate” with the U.S. on currency issues, adding Tokyo and Washington have long agreed that excessive volatility and disorderly moves in currency rates are undesirable.
“It’s important for currency rates to move stably, reflecting fundamentals. There’s no change to the government’s concern over currency market developments, including speculative moves,” he said. “We need to scrutinise how the U.S. tariff measures affect financial market moves, including currency rates.”
NO WORD ON YEN DISCUSSIONS
Kato declined to comment on how any discussions on currencies could unfold once he meets Bessent, saying that doing so now would be premature and cause undue speculation in the market.
“The only thing I can say is that we will actively exchange views based on Japan’s basic stance” on currencies, Kato said, when asked about market speculation that Washington could ask Japan to join a coordinated effort to weaken the dollar.
Trump has indicated he wants the trade talks to include his accusations that Japan intentionally weakens the yen to help its exporters and his complaints that Japan does not pay enough to support U.S. troops based in the country. Japan, which denies manipulating its currency, wants to avoid such topics.
Trade negotiator Akazawa, Japan’s economic revitalisation minister, said exchange rates did not come up in Wednesday’s talks, adding that both sides deferred to an earlier agreement between their leaders that currency matters would be set aside for talks between their finance chiefs.
Akazawa also brushed aside the idea that Washington might seek a coordinated effort to weaken the dollar.
“As it has done in the past, Japan’s government could take action in the market if there are speculative moves but it won’t do anything beyond that,” Akazawa told reporters in Washington after the talks. “Japan isn’t manipulating the market to weaken the yen in the first place.”
The policy chief of Ishiba’s ruling party, Itsunori Onodera, said on Sunday that Japan must strengthen the yen, such as by helping boost the country’s industrial competitiveness, to fight inflation.
U.S. MIGHT TARGET BOJ
But even as politicians talk up the yen, the Trump administration could target the Bank of Japan over the currency’s weakness, some analysts say.
For more than a decade, the BOJ pursued a radical monetary easing to fight entrenched deflation, even as other big central banks raised interest rates, driving the yen to near three-decade lows against the dollar. And while the BOJ has begun raising rates, it is moving slowly and rates remain extremely low.
Kato stressed that monetary policy decisions fall under the jurisdiction of the BOJ but said the government will deepen dialogue with the central bank on the economy, including the impact of U.S. tariffs.
“There is no change to our expectations the BOJ would guide monetary policy appropriately to achieve its 2% inflation target in a stable and durable manner,” he said.
Some Japanese lawmakers and policymakers have said Japan’s heavy reliance on global free trade heightens the need to convince the U.S. that tariffs are counterproductive, and reach out to other countries for policy coordination.
In the bilateral trade negotiations, Japan should explain how it can help the U.S. resuscitate its ailing manufacturing sector and narrow the huge U.S. trade deficit, Kato said.
He countered the view that Trump’s protectionist policies could create dysfunction in multilateral cooperation, in which the U.S. plays a crucial role.
“Obviously, any country would put its interest first. But countries have made efforts to iron out their differences,” Kato said. “Each country has its own situation and views. But it’s our job as policymakers to seek a better approach that eventually benefits the U.S., Japan, and the global economy.”
(Reporting by Takaya Yamaguchi and Leika Kihara; Additional reporting by Makiko Yamazaki and Kentaro Sugiyama; Editing by William Mallard)
