Japan policymaker wants stronger yen, says Tokyo shouldn't sell Treasuries

By Leika Kihara

TOKYO (Reuters) -Japan must strengthen the yen, such as by helping boost the country's industrial competitiveness, as the currency's weakness has pushed up households' living costs, the ruling party's policy chief said on Sunday.

Ahead of trade talks with the U.S., Itsunori Onodera, chair of the Liberal Democratic Party's Policy Research Council, also said Japan should not intentionally sell its U.S. Treasury holdings, the largest outside the United States, in retaliation against tariffs levied by President Donald Trump.

"As a U.S. ally, the government shouldn't think about intentionally using U.S. Treasury holdings," Onodera told a programme on public broadcaster NHK, rejecting an opposition lawmaker's suggestion that Tokyo use its huge holdings of U.S. government debt as a negotiating tool in bilateral trade talks.

By blaming the weak yen for accelerating inflation, Onodera could be signalling that Japanese policymakers consider the yen's downtrend, rather than its recent rebound, as the bigger problem for the economy.

"The weak yen has been among factors pushing up prices," Onodera said. "To strengthen the yen, it's important to strengthen Japanese companies."

The bilateral trade negotiations this week will likely include the thorny topic of currency policy, with some officials privately bracing for Washington to call on Tokyo to prop up the yen.

The slow pace at which the Bank of Japan is raising interest rates from ultra-low levels could also come under fire, sources have told Reuters.

Tokyo's top trade negotiator Ryosei Akazawa, the minister for economic revitalisation, will meet Treasury Secretary Scott Bessent on Thursday, two people familiar with the negotiations told Reuters.

TARIFFS ROIL YEN, TREASURIES

Japan has historically sought to prevent its currency from rising too much, as a strong yen would hurt its export-reliant economy. But in recent years as the BOJ continued its ultra-loose monetary policy while the Federal Reserve raised U.S. interest rates, the yen slid to nearly three-decade lows.

Tokyo intervened to buy the yen in 2022 and again last year, when the dollar had risen to nearly 160 yen. The Japanese currency has recently rallied in a broad-based sell-off of the dollar, which fell on Friday as low as 142.895 yen, its lowest since September.

The 10 trading days since Trump hit automakers with tariffs were the most convulsive since the pandemic panic of 2020, as prices of stocks, bonds, oil, gold and the dollar swung wildly.

Selling in Treasuries - the linchpin safe asset in global markets - was the heaviest for decades. A massive wave of selling that hit U.S. government debt in Asia on Wednesday stoked market speculation China was among those unloading its holdings.

The Treasury sell-off was among the factors that led Trump to announce a 90-day pause on his "reciprocal" tariff plan, with Bessent likely playing a key role.

Japan held $1.079 trillion in Treasuries in January, followed by China with $760.8 billion, according to Treasury Department data.

(Reporting by Leika Kihara; Editing by William Mallard)