The United States and Japan have carried out a rare joint currency intervention to support the Japanese yen, which had recently weakened to a 40-year low of nearly ¥164 to the US dollar. Following the operation, the yen strengthened to ¥155 to the dollar on Monday, marking its highest level since early May.
Donald Trump confirmed on Sunday that the US Treasury bought billions of dollars of the currency, stating, They have a weakening yen, and they wanted a little bit of help. And we’re always there for Japan.
This marks the first time in 30 years the US has intervened to strengthen the currency in this manner, and the first collaboration between the two nations since March 2011.
Economic Drivers and Intervention Details
The yen’s decline was fueled by a “carry trade,” where investors borrowed cheaply in yen to purchase higher-yielding dollar assets because Japanese borrowing costs remained lower than in other advanced economies. Additionally, the currency has been affected by concerns regarding Prime Minister Sanae Takaichi’s use of spending and tax measures to stimulate the economy, as well as her criticism of the Bank of Japan raising interest rates.
Meanwhile, Bank of Japan data reported by Reuters suggested Tokyo spent as much as $36.58bn last Friday to buy yen.
Political and Global Context
Japan relies on imports for food and energy, making those costs more expensive for consumers when the yen is weak. Prime Minister Takaichi has faced political pressure to combat inflation and has previously announced a temporary cut to the sales tax on food to ease cost-of-living pressures. Japan’s total public debt currently exceeds 200% of its GDP, the highest level in the G20.
US Treasury Secretary Bessent stated that Washington will not hesitate to participate in further joint intervention
and called for further interest rate increases from Japan’s central bank. Some economists suggest the US intervention may be an attempt to limit the volume of US government bonds that Japan sells.
While MUFG bank analyst Lee Hardman noted that the threat of further intervention and faster Bank of Japan hikes could discourage speculators, the consultancy Oxford Economics stated the coordinated effort would not be enough to reverse the overall trend of yen weakness.
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