Insight: In the most significant coordinated currency action in nearly three decades, the US and Japan jointly purchased more than $60 billion of yen last week — rather unconventionally selling euros rather than dollars to fund the operation. A notepad photographed in front of Treasury Secretary Scott Bessent at a cabinet meeting read "To Do: Buy Japanese Yen $5-10 bil." Bessent cited two reasons for the move: the weak yen is stoking inflation inside Japan by raising the cost of energy imports for a country that imports 90% of its fuel; and the risk that sustained yen weakness could trigger competitive devaluations across Asia, echoing the 1997-1998 currency crisis. However, Washington’s other (real) motivation is that its Pacific ally is the largest foreign holder of US Treasuries, and a Japan forced to keep selling those holdings to fund a unilateral yen defense would push up US bond yields and, with them, the government’s own borrowing costs.
Impact: The intervention has moved the yen from a 40-year low of around ¥164/$ to roughly ¥157/$ — and it has largely stalled there. This is consistent with what history and academic research suggest about currency interventions: they can slow or briefly reverse a move, but they rarely fix it. The American Enterprise Institute noted bluntly that Japan has repeatedly added its name "to the list of failed foreign exchange intervention experiments." An NBER study found that official interventions can strengthen a currency for hours or days, but the effects do not last. The classic illustration is Black Wednesday in September 1992, when the Bank of England spent over £27 billion defending sterling against George Soros and other speculators — and was ultimately forced to devalue. This proves that market forces will overwhelm official firepower if the economic fundamentals are out of whack. Today’s yen is structurally weak because real interest rates remain deeply negative at around minus 0.75%, while US rates are elevated, making the carry trade highly profitable. Without a meaningful narrowing of the US-Japan interest-rate differential, the gravity pulling the yen lower is likely to reassert itself.
