Why the US intervened to support Japan’s yen

The United States and Japan have joined forces to support the struggling yen, marking their first coordinated currency intervention since 1998.

Japan said yesterday that the US Treasury helped stabilize the yen through large-scale purchases of the currency, helping lift its value against the dollar over the weekend.

The move aims to calm financial markets and prevent wider economic risks as the yen recently fell to its weakest level against the US dollar in nearly 40 years. Japan’s swelling government debt, comparatively low interest rates, and higher oil import costs tied to the war in Iran have fueled concerns about the Japanese currency. Yen’s weakness is raising living costs in Japan, but it could also affect Americans.

Analysts say Washington’s decision was driven in part by concerns about the Treasury market. 

Japan is the largest foreign holder of US government debt, and officials wanted to avoid a situation in which Tokyo would have to sell large amounts of its bond holdings to fund its own currency intervention.

A selloff in US Treasurys would depress bond prices and push yields higher, increasing borrowing costs because bond prices and yields move inversely.

Instead, Japan plans to use the Federal Reserve’s FIMA repo facility, which provides dollar liquidity without requiring Treasury sales.

Experts also believe the intervention reflects stronger economic cooperation between the two allies. President Donald Trump said the action supports Japan while promoting global financial stability.

Analysts noted that a stronger yen could also help reduce Japan’s trade advantage by making its exports less competitive.

However, economists warned that currency intervention alone cannot solve the yen’s long-term weakness. They said Japan’s monetary policy remains the key factor, and lasting stability will likely depend on the Bank of Japan raising interest rates and allowing bond markets to normalize.