The Japanese yen reached its highest level in three months, trading at ¥155 to the US dollar on Monday, following a rare coordinated intervention by Washington and Tokyo. This joint effort, conducted late last week, helped the currency recover from a 40-year low of nearly ¥164 to the dollar, marking a 4% gain over the previous week.
Donald Trump addressed the situation on Sunday, telling reporters that the US acted to support Japan due to its weakening currency. "They have a weakening yen, and they wanted a little bit of help. And we’re always there for Japan," Trump stated. Tokyo’s finance ministry confirmed the coordinated yen-buying operation on Monday, adding that officials remain ready to take further action if necessary.
The recent pressure on the yen stemmed from a significant disparity in borrowing costs, as Japanese rates remained lower than those in other advanced economies. This gap encouraged a "carry trade," where investors borrowed cheaply in yen to purchase higher-yielding dollar assets. Additionally, the currency faced headwinds from investor concerns regarding Prime Minister Sanae Takaichi’s push for fiscal stimulus and her public criticism of higher interest rates.
US Treasury secretary Scott Bessent affirmed that Washington is prepared to participate in further joint interventions while continuing to urge the Bank of Japan to raise interest rates. A photograph of Bessent’s notebook from a cabinet meeting revealed a "to do" list including the purchase of $5bn to $10bn in Japanese yen.
Despite these measures, analysts at Oxford Economics suggested that the intervention may not be sufficient to reverse the long-term trend of yen weakness. They noted that the action likely provides the Bank of Japan with more time to evaluate the economic impacts of the Middle East conflict and previous rate hikes, suggesting the central bank may wait until December to implement further interest rate increases.
