In an unusual move, the US and Japan took joint action to support the yen.
There were a number of surprising features of the joint intervention. First, that it happened at all. Japan’s finance minister had earlier said that authorities were on standby to take “appropriate and bold action” to support the country’s currency, but there was no suggestion the US would be involved.
In the words of Financial Times markets columnist Katie Martin, “it’s incredibly rare for one country to help out another like this.”
Finally, it’s worth noting that US action apparently took the form of selling euros to fund yen purchases, rather than selling dollars directly, perhaps suggesting Washington was willing to support the operation without putting additional downward pressure on the dollar.
A friend in need
What motivated American intervention? According to President Trump, it was just what allies do. “They have a weakening yen, and they wanted a little bit of help. And we’re always there for Japan,” he said.
Of course, the broader concern is for the health of the global economy and potential spillover effects for the US. One economist told the BBC, “Even if the actual amount of intervention is not particularly large, the prolonged sense of vigilance regarding intervention will be effective in deterring speculators.”
But as the FT’s Martin suggests, the depreciation of JPY has been relatively steep but not sudden: “The decline in the yen against the dollar has been perfectly orderly. This is a readjustment, not a dislocation. Why is anyone intervening at all? “
Ultimately, only a shift in Japan’s spending and monetary policies, or an easing in the global backdrop, particularly energy prices, is likely to provide lasting support for the yen.
As an ING analysis points out, “this intervention does not change the fundamentals of a Fed close to hiking and Tokyo running a loose set of monetary and fiscal policies, which are weighing on the yen.” However, it is serving its function to stabilise the currency, “limiting investors from chasing USD/JPY through 160 and buying time for Tokyo to introduce more yen-positive policies.”
Global debt
Yet the bigger questions remain. What would a sustained normalisation of Japanese monetary policy mean for the global economy? If Japan raises rates and domestic assets become more attractive, could Japanese investors begin to pull money out of foreign bond markets, putting pressure on borrowing costs elsewhere? In Ryan Avent’s pithy phrase, “worries about Japan are really about much more than Japan”. That question is especially sensitive at a time when many advanced economies are grappling with rising debt burdens while simultaneously funding industrial policy, defence spending and economic reshoring.
All this in the context of a more interventionist Treasury. Secretary Bessent has been unusually willing to deploy the tools of US financial power in pursuit of wider strategic goals, most notably through support for Argentina. Seen in that light, assisting Japan is not simply a currency operation but another example of Washington using its balance sheet to shape economic outcomes among key allies.
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