\n The Japanese government stepped in to prop up the yen earlier this year, but failed to halt its slide. With the currency now at fresh multi-decade lows, traders are bracing for another attempt.\n <\/p>\n
\n Here\u2019s what\u2019s going on:\n <\/p>\n
\n Traders are betting the US Federal Reserve will likely hold rates steady, or even increase them, in the coming months, to combat inflation spurred by the oil shock from the US-Israeli war with Iran.<\/a>\n <\/p>\n \n That shift in the Fed\u2019s outlook has led to a strengthening of the dollar, putting pressure on the yen and other currencies. The US dollar index is up 3% this year, rebounding after tumbling 9% in 2025.\n <\/p>\n \n \u201cThe energy price shock triggered by the US-Iran war has been the last catalyst for a weaker yen, which has been reinforced by the recent hawkish shift in Fed policy communication,\u201d Lee Hardman, senior currency economist at MUFG, said in an email.\n <\/p>\n \n Currencies typically rise and fall based on differences in interest rates in different countries. The Bank of Japan on June 16 raised its benchmark interest rate to 1% \u2013 the highest level since the 1990s. But the BOJ\u2019s interest rate is still considerably lower than that of the Fed, which in June held its rate steady at a range of 3.5% to 3.75%.\n <\/p>\n \n That gap is pushing money towards the US and away from Japan as investors chase better returns, strengthening the dollar \u2013 and pushing the yen lower \u2013 while increasing volatility across global markets.\n <\/p>\n \n The Supreme Court on Monday also ruled that President Donald Trump cannot fire Fed Governor Lisa Cook without evidence of any wrongdoing, bolstering the central bank\u2019s independence. The Fed\u2019s assertive attitude toward inflation, coupled with the reinforcement of the Fed\u2019s independence, have supported the dollar (and pushed the yen lower).\n <\/p>\n \n The Japanese currency in recent months was at its lowest level against the dollar since 2024, but in recent days it slipped below that level to its lowest point since the 1980s.\n <\/p>\n \n Japan had extraordinarily low interest rates \u2013 zero to negative \u2013 across the 2000s and 2010s to try and juice the economy and prevent deflation after the country\u2019s economy went into a severe recession in the 1990s.\n <\/p>\n \n In 2024, the BOJ began raising interest rates as the country began to experience inflation above the central bank\u2019s target of 2%. But the yen has continued to decline as Japan\u2019s interest rates remain lower compared to the rest of the world.\n <\/p>\n \n A runaway slide in the currency \u2013 paired with stubborn inflation \u2013 could spark an economic crisis. A weaker currency can make imported goods more expensive, and Japan imports much of its food and energy. The US-Israeli war with Iran and the surge in oil prices has had outsized impacts on Asian economies<\/a> that are reliant on oil from the Middle East.\n <\/p>\n \n \u201cJapanese officials have made it clear that the weak yen poses a threat to import costs and Japan\u2019s cost of living crisis, which has been a key topic for the electorate,\u201d Chris Turner, global head of markets at ING, said in a note.\n <\/p>\n \n The Japanese government could boost its currency by selling US dollars or assets denominated in dollars, like US Treasuries, and then buying yen. Intervention could come as soon as this weekend, according to Turner at ING.\n <\/p>\n \n A jump in the yen could move financial markets by putting pressure on the dollar and Treasuries.\n <\/p>\n \n The government has intervened in markets before \u2013 as recently as earlier this year. Japan sold about $70 billion in assets in late April and early May in an effort to boost the yen, according to ING. There was minimal impact on US markets, but the intervention failed to address the underlying problems.\n <\/p>\n \n If Japan were to sell more of its US Treasury holdings, it could push yields higher. Yields rise when bond prices fall. Analysts say, however, that the overall effect would be modest, given the size of the US bond market.\n <\/p>\n \n \u201cJapanese currency intervention efforts are typically conducted at a scale far too small \u2014 tens of billions against roughly $29 trillion in marketable Treasuries \u2014 to have a material impact on US yields,\u201d Karl Schamotta, chief market strategist at Corpay, said in an email.\n <\/p>\n \n For the stock market, there are still implications. A popular trade on Wall Street involves borrowing yen to invest in US stocks, which is relatively affordable because of the BOJ\u2019s history of near-zero interest rates.\n <\/p>\n \n But if the yen spikes in value because of government intervention while the BOJ is raising rates, borrowing suddenly becomes more expensive. That could unwind the so-called \u201ccarry trade.\u201d Traders would have to sell their stocks to pay back their loans.\n <\/p>\n \n \u201cA \u2018shock and awe\u2019 campaign involving much larger trading volumes, especially if coordinated with the US Treasury, could trigger a violent unwind in the carry trade, however, with severe negative implications for US equity markets,\u201d Schamotta added.\n <\/p>\n![\"The](\"https:\/\/www.newsbeep.com\/il\/wp-content\/uploads\/2026\/07\/gettyimages-2235633916.jpg\")
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