Uncle Sam is wading into the Japanese economy with the enthusiasm of an American tourist splurging in a Tokyo manga store. Japan confirmed yesterday that the US Treasury helped prop up the yen for the first time since 1998 by bulk buying the struggling currency, lifting its value against the dollar over the weekend. It’s unknown how much yen the US purchased amid the Japanese government’s own yen-buying binge, but Treasury Secretary Scott Bessent was photographed on Friday with a “to-do list” that had one item: buy $5-10 billion of yen. Yesterday, the treasury secretary also publicly called on the Federal Reserve to expand a facility that Japan can use to support its currency. What’s in it for the US?The yen-dollar exchange rate recently hit its lowest point in 40 years due to concerns about Japan’s swelling government debt, relatively low interest rates, and rising oil import costs amid the Iran war. That raises household costs in Japan, but it could also impact Americans: - The US might’ve been worried that Japanese authorities would dump the country’s massive US government bond holdings to buy yen and stabilize the currency. Since bond prices move inversely to yields, a selloff would lower US Treasury bond prices, leading to higher borrowing costs.
- President Trump previously took issue with weak foreign currencies, which advantage international exporters over US producers.
Meanwhile, some experts think Japanese Prime Minister Sanae Takaichi’s closeness with the Trump administration made it more willing to help. Last year, the US stepped in to buy Argentinian pesos, as the currency flagged during the exchange rate reforms of President Javier Milei, a staunch Trump ally. Is the yen saved? Analysts say that the yen spike might prove short-lived. They argue more sustainable currency strengthening would require Japan’s government to reduce debt and for its central bank to hike interest rates more aggressively. Higher rates in Japan would make it less attractive to borrow yen, then swap it for other currencies to buy higher-yielding foreign bonds—a common practice known as the carry trade that has contributed to the yen’s weakness. Looking ahead…Bessent says the US “won’t hesitate” to buy more yen.—SK | 
