The US has launched a bid to prop up the value of the yen, marking an extraordinary coordinated intervention with Japan\u2019s government to halt the currency\u2019s fall as it approaches 40-year lows.<\/p>\n
Japan has been struggling to stop an accelerating slide in the yen, which has been piling pressure on its already flailing economy. Japan is reliant on imports for both energy supplies and food, and a weak yen makes the cost of those imports more expensive for businesses and consumers.<\/p>\n
The Trump administration\u2019s assistance in helping to raise the value of the currency comes as prime minister Sanae Takaichi is under growing political pressure to rein in inflation and bring sustained growth back to the economy.<\/p>\n
Why is the yen falling?<\/p>\n
Japan has spent billions of dollars since 2022, trying to limit the yen\u2019s decline<\/a> \u2013 but the currency has continued to hit new lows. Some of the decline is because investors keep selling the currency, while global events have pushed it even lower.<\/p>\n Japan is reliant on energy exports from the Middle East<\/a> and has been hit hard by the slow down of oil and gas from the region thanks to the US war on Iran. That in turn has put pressure on inflation, while the government attempted to ease the pressure on consumers by spending billions on fuel subsidies<\/a>.<\/p>\n The Bank of Japan (BOJ) has also kept interest rates extraordinarily low, which helps to diminish the value of the currency as it is less attractive to international investors.<\/p>\n Government debt is another factor; the government is spending billions more than it receives in tax on measures to stimulate the stagnating economy and to cope with its ageing population. Japan\u2019s total public debt now sits at more than 200% of its GDP, the highest level in the G20.<\/p>\n Why has the Trump administration intervened in the yen?<\/p>\n The first clues that the US would intervene came during a Trump administration cabinet meeting on Friday. US treasury secretary Scott Bessent was pictured with a note<\/a> reading: \u201cTo Do. Buy Japanese Yen (JPY) $5-10 bil\u201d.<\/p>\n A notepad in front of Scott Bessent reads \u201cTo Do Buy Japanese Yen $5-10 bil\u201d. Photograph: Daniel Heuer\/Reuters<\/p>\n \u201cJapan\u2019s been very good \u200cto us, with the exception, of course, of Pearl Harbor,\u201d Trump said on Sunday, as he confirmed that the treasury had bought billions of dollars\u2019 worth of Japanese yen, the first time in 30 years that the US has stepped in to strengthen the currency in such a way.<\/p>\n The US president said the intervention would be \u201cgood for the world economy,\u201d but some analysts are suggesting that the Trump administration is concerned that Japan\u2019s efforts to buy up yen, raising the value of their currency, could hit the US economy by making government borrowing more expensive.<\/p>\n In order to free up the money to buy yen, Japan has been selling US government bonds \u2013 known as treasuries. Many countries own US bonds as a store of national wealth, but when they are sold in large quantities, that can lead to a rise in the interest the US treasury pays on its debt.<\/p>\n Effectively, this makes it more expensive for the US to borrow money to fund government spending. Economists are suggesting that the Trump administration\u2019s intervention could be an attempt to limit the amount of US government bonds that Japan sells.<\/p>\n \u201cPut yourself in US treasury secretary Scott Bessent\u2019s shoes,\u201d wrote Rebecca Patterson, a senior fellow at the council of foreign relations. \u201cIt is in his interest to do what he can to help Japan stabilize the yen sooner rather than later.\u201d<\/p>\n What role do Takaichi\u2019s policies have here?<\/p>\n Prime minister Sanae Takaichi said recently that she spends all day and most of the night plotting Japan\u2019s economic recovery \u2013 but at the same time, she\u2019s fighting to regain ground in national polls, with rising import costs, the Middle East energy shock and the weak yen all hitting her standing with voters.<\/p>\n Sanae Takaichi appears with Donald Trump at a speech in Yokosuka last year. Photograph: Eugene Hoshiko\/AP<\/p>\n In a possible effort to arrest this decline, she announced in April that Japan would temporarily cut the sales tax on food<\/a> to ease cost of living pressures. Those cuts come as she is also promising to invest hundreds of billions in sectors across the economy, as part of a pro-growth agenda which has become the signature policy of her new government.<\/p>\n But concerns over how all this spending will be funded \u2013 amid already huge levels of debt \u2013 have led to fears that her policies could blow up the economy, triggering a \u201cLiz Truss-style shock\u201d<\/a>. Experts say this uncertainty has added fuel to market volatility, which in turn pushes the yen lower.<\/p>\n How unusual is this move by the Trump administration? <\/p>\n In October last year, the US bought billions of Argentinian pesos to help prop up the country\u2019s finances, weeks before a vital election for the country\u2019s rightwing president Javier Milei, an ideological ally of Trump.<\/p>\n At the time, US treasury secretary Bessent made clear that the intervention was done to ensure the success of Argentina\u2019s \u201creform agenda\u201d \u2013 an austerity plan described by some as \u201cshock therapy\u201d \u2013 which saw wages frozen and public spending cut.<\/p>\n Some analysts have suggested that in Takaichi, Trump sees an ideological ally akin to Milei, which could be another factor contributing to the decision to prop up the yen.<\/p>\n