When President-elect Donald Trump sits down with Japanese Prime Minister Shinzo Abe this evening, their agenda will almost certainly include the Japanese economy.
Japan, the United States' fourth-largest trading partner, has a growth problem. Its GDP is expected to creep up 0.5 percent in 2016 and 0.6 percent in 2017. The country has slowly been adopting fiscal stimulus measures and reforms to accelerate that growth. In the meantime, the Bank of Japan has been experimenting with monetary policies aimed at stimulating the economy.
One particularly sore spot: Japanese exports. The latest government report showed exports fell for the 12th-straight month. Much of that weakness has been blamed on a stronger yen, in addition to a slowdown in global trade. The yen, considered a "safe haven" currency in Asia, has strengthened throughout 2016, although the currency has been hammered 4 percent since Trump was elected.
The fix may seem obvious: Weaken the yen, boost exports. But Japan is bound by a G20 agreement which prevents them from entering into competitive currency devaluations, something the United States issued a strong reminder about earlier this year, as the yen began appreciating.
On the campaign trail, Trump took an aggressive stance on countries such as China that he says manipulate their exchange rates for competitive advantage.
BOJ sources recently said sharp yen spikes would trigger an intervention, though officials have not commented on the matter. It will be interesting to see if Trump does.