Japan-US to base talks on past FX agreement, Kato says

By Leika Kihara

TOKYO (Reuters) -Japanese Finance Minister Katsunobu Kato said on Tuesday he expects any bilateral meeting with U.S. Treasury Secretary Scott Bessent on exchange rates to be based on their shared view that excessive currency volatility was undesirable.

"In our previous meeting, we confirmed that exchange rates should be set by markets, and that excessive volatility in currency moves has an adverse economic and financial impact," Kato told a news conference.

"I expect any meeting with the U.S. Treasury Secretary to be based on this understanding," he said, adding that he hoped to exchange views on various bilateral themes including currency policy.

Kato and Bessent are expected to hold a bilateral meeting on the sidelines of a G7 finance leaders' gathering to be held this week in Canada.

Kato also said Japan was scrutinising the impact on its economy and markets from Moody's decision last week to downgrade the credit rating of the United States.

As Tokyo and Washington proceed with separate bilateral talks on tariffs, the thorny currency rate topic has been set aside for the two finance chiefs to discuss.

President Donald Trump's focus on addressing the huge U.S. trade deficit, and his past remarks criticising Japan for intentionally maintaining a weak yen, have led to market expectations that Tokyo will face pressure to strengthen the yen's value against the dollar and give U.S. manufacturers a competitive advantage.

After a previous meeting with Bessent in Washington last month, Kato said the two agreed to continue "constructive" dialogue on currency policy, but did not discuss setting currency targets or a framework to control yen moves.

(Reporting by Leika Kihara; Editing by Christian Schmollinger and Shri Navaratnam)

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