Katayama, speaking in Tokyo, said the prime minister has asked her to make clear to overseas audiences that "she is not a reflationist." Katayama also stressed that "Takaichi herself has great respect for central bank independence," adding that day to day decisions are for the Bank of Japan. With inflation back in the mix, she suggested the environment has shifted from the playbook of former Prime Minister Shinzo Abe, Takaichi's mentor known for easy money and flexible budgets. Growth Strategy Minister Minoru Kiuchi chimed in that Japan's economy no longer needs reflationist policies, a notable comment from a cabinet member long linked to that approach. Katayama said she is careful not to give any impression the government is steering BOJ policy.
The BOJ's move last week was its third rate hike in less than a year, and two board members selected by Takaichi voted against it. That outcome fed the sense that the government still prefers a slower climb in rates alongside a pro growth strategy. The yen is now weaker against the dollar than just before the hike, and government bond yields have pushed to highs not seen since the mid 1990s.
Katayama characterized the rise in yields as a worldwide pattern, citing heightened private-sector funding needs linked to an AI investment boom, and said the swift climb should prove short-lived. She reiterated she is prepared to step in again to support the yen. She also noted that higher rates can help households by lifting interest income on bank deposits, which matters more in Japan where savings lean toward banks rather than stocks.
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Katayama said recent conversations in Tokyo with prominent US investors, including Stanley Druckenmiller and JPMorgan Chase CEO Jamie Dimon, showed some still think Takaichi's administration is constraining the BOJ. She dismissed the notion that Washington is driving Japan's decisions, even after a spate of remarks from US Treasury Secretary Scott Bessent over the past few weeks. According to a Finance Ministry readout, Katayama and Bessent spoke Friday, exchanged views on market developments, reaffirmed concern that the yen is undervalued, and reaffirmed their intention to further strengthen cooperation.
"We discussed the desirability of a strong yen that reflects Japan's strong economic fundamentals," Bessent posted on X. Earlier Friday, at a press conference, Katayama said President Donald Trump had told Takaichi in New York this week that he was worried about the yen's weakness. In the interview, she added that the comment did not go further and the leaders did not discuss what to do next on the currency.
Katayama said the Finance Ministry is reviewing budget requests and that several big line items, including defense, remain undecided. She said the build-up is not being driven by US pressure, arguing the plans are guided by Japan's domestic security requirements. In light of China's recent moves, she pointed to shortcomings in areas like cybersecurity and large-scale drones and said, "There are many capabilities we simply don't have, so we need to acquire them," then said that covering those gaps would push defense spending past Japan's pledge of 2% of GDP.
Separately, Bloomberg has reported the government is weighing a new medium-term target of 3.5% of GDP for defense, aligning it with goals established by NATO and other US allies. For households, the near term mix of cautious BOJ tightening, a finance ministry ready to steady the yen, and possible shifts in defense spending can all sway currency moves and rates. If you have savings or income exposed to the yen or Japanese yields, this is worth watching.
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