The United States has stepped into Japan’s currency market for the first time in more than a decade, purchasing Japanese yen in a rare coordinated intervention aimed at strengthening the currency after it plunged to a 40-year low against the US dollar.
US President Donald Trump described the move as a gesture of goodwill toward a key ally.
“They have a weakening yen, and they wanted a little bit of help. And we’re always there for Japan,” Trump told reporters aboard Air Force One on Sunday.
His remarks confirmed reports that Washington and Tokyo jointly intervened in the foreign exchange market on Friday to halt the yen’s prolonged slide, which has been intensified this year by higher energy prices linked to the Iran war.
The intervention marks an unusual collaboration between the two countries and reflects concerns over the broader economic consequences of the yen’s weakness.
While a depreciated yen benefits Japanese exporters and makes Japan a more affordable destination for foreign tourists, it also drives up the cost of essential imports such as oil and natural gas, adding to inflationary pressures.
For the United States, an overly strong dollar makes American goods more expensive overseas, reducing their competitiveness in global markets.
Japan’s Finance Minister, Satsuki Katayama, said the coordinated action was intended to stabilise the currency market.
The Friday intervention, she said in a statement on Monday, “countered excessive volatility and disorderly movements in the Japanese yen in recent months.”
The Financial Times had earlier reported that the Federal Reserve Bank of New York sold euros to buy yen on behalf of the US Treasury Department, citing people familiar with the operation.
Trump insisted the coordinated move would have wider economic benefits.
He said supporting the yen would be “good for the world economy,” and that the US would benefit financially from the move without explaining how.
US Treasury Secretary Scott Bessent also signalled Washington’s readiness to continue working with Japan if necessary.
The Treasury Department, he wrote on X, “will not hesitate to participate in further joint intervention.”
“We strongly support Japan’s decisive market and monetary steps to correct the substantial undervaluation of the yen,” he said.
Evidence of the planned intervention also surfaced during President Trump’s cabinet meeting at Camp David on Friday.
A Reuters photograph captured Bessent’s handwritten notes, revealing an underlined “To Do” list that included the instruction: “Buy Japanese Yen (JPY) $5-10 bil.”
Why the Yen Has Remained Weak
Japan’s currency has struggled for years, largely because of the country’s long-standing low interest rate policy.
Following decades of economic stagnation and deflation that began in the 1990s, Japan maintained near-zero and even negative interest rates in an effort to stimulate growth.
Although the Bank of Japan raised rates in 2024, borrowing costs remain significantly lower than those in many advanced economies, particularly the United States, where aggressive rate hikes were introduced to combat inflation.
According to Hung Tran, a nonresident senior fellow at the Atlantic Council and former deputy director at the International Monetary Fund, the wide interest rate gap has encouraged investors to fund investments by borrowing yen and shifting capital into higher-yielding currencies.
“Japan’s persistently low interest rates relative to those abroad, especially in the US, have encouraged international investors to borrow – or short – the yen and invest the proceeds in higher-yielding currencies,” said Hung Tran, a nonresident senior fellow at US think tank Atlantic Council and a former deputy director at the International Monetary Fund, in a report last month.
Tran also noted that extensive overseas investments by Japanese firms and the decision to keep foreign earnings abroad have continued to weigh on the value of the currency.
Japan’s dependence on imported fuel and food has further complicated the situation.
The Iran war has driven up global energy prices this year, worsening the country’s trade balance and increasing the cost of living.
“Rising oil and gas prices worsen the trade balance and generate inflationary pressures,” said Sayuri Shirai, an economics professor at Keio University in Tokyo and a former board member of the Bank of Japan.
She added that rising inflation has weakened consumers’ purchasing power and slowed economic growth, leaving little room for a sustained recovery of the yen.
Analysts Remain Cautious
The Bank of Japan previously intervened in April to strengthen the yen, but the impact proved short-lived as the currency soon resumed its decline.
Market analysts believe the latest coordinated effort may produce a stronger short-term effect because of the direct involvement of the United States, but they remain doubtful that it will reverse the currency’s longer-term trend.
Shusuke Yamada, chief foreign exchange and interest rate strategist of Japan at Bank of America Securities, said the conventional view is that foreign exchange intervention could “only buy time” in a Friday report.
Barclays also noted in a research report on Monday that although the joint intervention could deliver a greater immediate impact than previous efforts, structural factors continue to point toward longer-term weakness.
“Even if the JPY were to strengthen further in the near term, we continue to believe that longer-term downward pressures remain in place,” it said, referring to the currency.
