Economy The weakening of the yen

[thomas]

Yesterday, the yen depreciated against the dollar to its lowest level in almost four decades, slipping to 163 as U.S.-Iran tensions drive up oil prices.

he yen's selling pressure comes amid escalating tensions in the Middle East, which prompted safe haven flows into the greenback. Traders are also viewing recent moves by Prime Minister Sanae Takaichi's administration as a sign of tolerance for yen weakness. In overseas trading on Tuesday, the yen fell into the 163 range for the first time since December 1986. As of Wednesday morning in Tokyo trading, the yen was weaker by 0.4% at around 163.21 per dollar. "The USD/JPY pair continues to trade around recent four-decade highs, despite last week's soft U.S. inflation report," said Matthew Ryan, head of market strategy at global financial services firm Ebury. "Rising oil prices are a downside risk for the Japanese economy, a net importer of energy, and are acting to help keep the yen on the back foot."

Paywall alert:

Yen falls to 39-year low of 163 per dollar on Iran tensions, Takaichi plan

Dollar buying accelerates as Brent futures climb above $92

asia.nikkei.com

 

[Lothor]

The first seven minutes of this video is a very well-explained primer about Japan's debt/bond crisis.

 

[johnnyG]

Yeah, it's the difference in interest rates that's behind the fall of the yen.

And maybe the kanto housing/condo market could use a little taming? (via increased rates)

 

[Lothor]

Yeah, it's the difference in interest rates that's behind the fall of the yen.

And maybe the kanto housing/condo market could use a little taming? (via increased rates)

The danger is hurting the ordinary Japanese person who borrows, say, 5,000 man over 35 years. Each percentage point increase in the base rate costs them an extra 2.5 man per month. There must be better ways of discouraging speculation, which is driving the price rises at the top end of the market.

 

[Lothor]

It looks like the Bank of Japan has made another major currency intervention, with the dollar now at 159 yen instead of 164 yen. The pound has already regained a third of the value it lost, so this may well be another blip in the decline of the yen.

https://www.reuters.com/world/asia-pacific/yen-strengthens-sharply-against-us-dollar-2026-07-30/

 

[Petaris]

It looks like the Bank of Japan has made another major currency intervention, with the dollar now at 159 yen instead of 164 yen. The pound has already regained a third of the value it lost, so this may well be another blip in the decline of the yen.

https://www.reuters.com/world/asia-pacific/yen-strengthens-sharply-against-us-dollar-2026-07-30/

I am not knowledgeable about global, or even national economics, theory however I have to question, was however much that they spent to do this really worth a temporary, likely only days, 5 JPY increase against the USD?

Does anyone know if this actually helps? And does it help enough to makeup for the cost?

 

[thomas]

I am not knowledgeable about global, or even national economics, theory however I have to question, was however much that they spent to do this really worth a temporary, likely only days, 5 JPY increase against the USD?

Does anyone know if this actually helps? And does it help enough to makeup for the cost?

I have been wondering the same thing! Is it worth spending trillions of JPY on currency intervention if the effect lasts only for a short while?

So I asked the all-mighty AI:

Why does the Japanese government spend trillions of yen intervening in the currency market when the effect often lasts only a few days?

That's a good question, and the answer is that the Japanese government is usually not trying to strengthen the yen permanently. Instead, it is trying to slow disorderly movements and signal that there is a limit to how fast the currency can fall.

A few key points:

• Japan intervenes by selling US dollars and buying yen. It uses its large foreign exchange reserves—mostly US Treasury securities—not ordinary tax revenue. So while taxpayers ultimately own those assets, the government isn't typically "spending tax yen" in the way it funds public services.
• Intervention is intended to smooth volatility, not reverse long-term trends. If the underlying forces are still pushing the yen lower—such as the wide interest-rate gap between Japan and the US—then even tens of billions of dollars of intervention may only support the yen for a few days or weeks.
• The signalling effect matters. A large intervention tells currency traders that the Ministry of Finance and the Bank of Japan are prepared to act again. That alone can discourage speculative bets against the yen, at least temporarily.
• Buying time can be valuable. Policymakers may hope that market conditions will change naturally—for example, if the US Federal Reserve cuts interest rates or the Bank of Japan tightens policy. Temporary intervention can bridge the gap until those broader factors shift.

Why not keep intervening until the yen recovers?

Because the foreign exchange market is enormous, daily global currency trading exceeds US$7 trillion. Even Japan's interventions of ¥5–10 trillion (roughly US$30–70 billion) are small compared with the overall market. If the market believes the "correct" exchange rate is lower because US interest rates are much higher than Japan's, intervention alone is unlikely to win for long.

A useful analogy is trying to slow a boulder rolling downhill. You may not stop it, but you can reduce its speed and prevent it from crashing through a village before a proper barrier is built.

This is why economists often say that intervention can influence the pace of exchange-rate movements, but monetary policy determines the direction. As long as Japan maintains relatively low interest rates while the US offers much higher returns, investors have a strong incentive to sell yen and buy dollars. Intervention can lean against that trend, but it cannot usually overturn it on its own.

 

[thomas]

Preliminary money market data released by the Bank of Japan on Friday suggests authorities carried out between 6 trillion and 7 trillion yen (US$37.5 billion to US$44 billion) in yen-buying intervention on Thursday. The estimate comes after the yen surged about 3% against the US dollar in early New York trading that day.

The BOJ's figures show there will be a liquidity drain of 8.2 trillion yen from the financial system on 3 August in connection with government-sector transactions made on 30 July. Such transactions are normally settled two business days later. Money market brokers had expected a much smaller drain, or even a surplus. An official at the brokerage Central Tanshi said the wide gap between those forecasts and the BOJ's data pointed to intervention worth around 6 trillion to 7 trillion yen.

Paywall alert:

Japan yen-buying intervention Thursday may have totaled up to $44bn

Possible purchase follows $73bn yen total in April-May

asia.nikkei.com

 

[Majestic]

A useful analogy is trying to slow a boulder rolling downhill. You may not stop it, but you can reduce its speed and prevent it from crashing through a village before a proper barrier is built.

Somehow this doesn't feel like a very useful analogy.

 

[thomas]

The United States recently intervened in the currency market to support the weakening yen at Japan's request, President Donald Trump said on Sunday. He described the move as a "signal of friendship" that would also benefit both the US and the global economy. Speaking to reporters, Trump said the intervention had been carried out because Japan had asked for help. He argued that a stronger yen would support economic stability, adding that the move was in America's own interest as well as that of the wider global economy.

The remarks marked a rare public acknowledgement by a US president of direct involvement in a foreign exchange intervention. Currency market operations by governments are usually disclosed by finance ministries or central banks rather than announced by political leaders. Trump did not provide details on the scale or timing of the intervention, nor did he say whether it had been coordinated with Japanese authorities beyond the request itself. Japan's Ministry of Finance has not publicly commented on his remarks.

"We're very strong -- very very strong financially. They are, you know, they have a weakening yen, and they wanted a little bit of help. And we're always there for Japan. Japan's been very good to us, with the exception, of course, of Pearl Harbor," the president said."

Trump says Japan wanted U.S. currency intervention to support yen - The Mainichi

WASHINGTON (Kyodo) -- The United States recently intervened in the currency market to support the weakening yen at Japan's request, President Donald T

mainichi.jp

https://edition.cnn.com/2026/08/02/business/us-buys-japan-yen-intl-hnk

 

[Lothor]

I wonder what Trump is expecting in return.

 

[thomas]

More on the concerted effort:

​

Japan and the United States carried out coordinated yen-buying intervention in the foreign exchange market to slow the currency's sharp decline, according to people familiar with the matter. Finance Minister Satsuki Katayama is expected to announce the move on 3 August formally. Government and financial sources said the two countries jointly bought yen in the New York market on 31 July, helping lift the Japanese currency to the lower ¥157 range against the US dollar. Earlier, the yen had fallen to nearly ¥164 to the dollar. The intervention followed a separate operation on the night of 30 July, when the Japanese government and the Bank of Japan bought yen and sold dollars to support the currency. US Treasury Secretary Scott Bessent was also seen with a memo on his desk during a Cabinet meeting on 31 July indicating that the United States would purchase between US$5 billion and US$10 billion worth of yen. The joint operation marked the first coordinated yen-buying intervention by Japan and the United States since the financial crisis in 1998. Katayama is expected to explain the series of measures taken to counter the yen's excessive weakness at a press conference on 3 August.

Japan and U.S. Coordinate Intervention for First Time in 28 Years

Japan and the United States conducted coordinated yen-buying intervention in the foreign exchange market to curb the currency

newsonjapan.com

The Japanese currency rallied to around 155.22, its strongest level since early May. As of 13:30 p.m. in Tokyo, the yen was up over 2% at around 156.51 per dollar. Last week, the yen ended trading in the lower 157 range against the greenback. The Japanese currency also rose against the euro, reaching the mid-179 range for the first time since November 2025. The sudden moves come on the back of a coordinated effort by Japan and the U.S. to support the yen.

According to preliminary money market data released by the Bank of Japan on Friday, around 6 trillion to 7 trillion yen ($37.5 billion to $44 billion) worth of yen-buying intervention took place on Thursday. Operations continued into Friday, and statements from both governments have heightened market vigilance for additional action. Japan also stepped into the market earlier this year, buying a record 11.7 trillion yen during the Golden Week holiday season, which straddles late April and early May.

Paywall alert:

US-Japan intervention helps lift yen to 155 but concerns remain

JGB yields rise and stocks fall as Japan finance minister's words keep traders wary

asia.nikkei.com

 

[mdchachi]

I wonder what Trump is expecting in return.

Just adulation. And perhaps a made-up peace prize.

 

[thomas]

Ten days after the joint intervention, the dollar is back at 160 yen. The Guardian on why the US keeps supporting the Japanese currency:

This was less a rescue of the yen than an effort by US Treasury Secretary Scott Bessent to protect a source of cheap funding that has become important to American markets. Japan's ultra-low-cost money has effectively turned into a global funding tool. Banks and investors borrow yen, sell them for dollars and put the money into higher-returning US assets, particularly technology shares.

Rising US stock prices in turn support collateral and further investment. Japan's carry trade is one reason Wall Street has been able to channel hundreds of billions of dollars into artificial intelligence, with research suggesting that AI investment now absorbs more than 1% of US GDP. Washington therefore has an interest in keeping the flow of cheap yen funding open, but not if the result is a collapsing Japanese currency or pressure on Japan to sell US Treasuries. The Guardian had warned in April that Tokyo's monetary policies had tied US financial markets increasingly closely to the yen carry trade.

Bessent ultimately intervened by selling at least $10 billion worth of euros and buying yen, helping halt the currency's fall towards a 40-year low. European governments were apparently not informed beforehand. The episode offered another reminder that, when financial interests are at stake, Washington's treatment of its allies can be distinctly selective.

[Mr Bessent] hates the alternative: Japan selling its $1.1tn treasury pile to buy yen. Dumping US debt would drive yields higher – and leave Washington with a costlier interest bill. Instead, Mr Bessent has allowed Japan to borrow dollars against its treasuries and use those dollars to buy yen. He has used a Federal Reserve lending facility to help – and wants its current $60bn daily limit substantially increased. This would give Tokyo room to stabilise the yen without having to choose between abandoning its reflationary programme and selling treasuries.

The Guardian view on Japan’s yen: Trump wants to keep the easy-money machine running | Editorial

Editorial: A cheap currency helps finance the US tech boom. Washington is intervening because allies matter only when they are useful

www.theguardian.com

Why the historic U.S.-Japan intervention has failed to halt the yen’s slide

The Japanese yen has erased about half of the gains from an unprecedented U.S.-Japan intervention less than two weeks ago.

www.cnbc.com

 

[johnnyG]

The value of Japan's oil imports has surged along with the price of oil, which has been driven by the US war on Iran and the resulting closure of the strait of hormuz. And instead of relying, as it had, on oil from the gulf countries, Japan has been buying more from both the US and russia.

So besides the interest rate differential, the US started a war which raised oil prices. And regardless of where japan buys it, oil is priced in dollars, meaning japan's need to buy dollars has shot up by a roughly equivalent amount (weakening the yen, while also putting the yield on US treasuries in a bind, thus the US intervention).

Japan may have its own internal issues that result in a weaker yen, but it certainly doesn't help that the US war is now causing it to buy billions of dollars more every month to pay for oil.

 

[thomas]

The NYT on why interventions are basically futile without structural reform:

The reversal underscores the limits of one-off currency interventions while investors remain uneasy about Japan's enormous debt burden, Prime Minister Sanae Takaichi's push for aggressive government spending and a perception that the Bank of Japan is raising interest rates too slowly. "It's no surprise that the yen has weakened again," said Marcel Thieliant, head of Asia Pacific at Capital Economics, an economic research firm. "Without change to the underlying story, the underlying fundamentals, there's no reason to think that this intervention would have a lasting impact."

JREF gift article:

https://www.nytimes.com/2026/08/14/business/japan-yen-intervention.html?unlocked_article_code=1.6FA.__kg.WzRR8hAaxg-C&smid=url-share

 

[johnnyG]

One point in the article that I wasn't aware of: (penultimate paragraph)

"Others argue that the yen's weakness could ease if fears of a fiscal crisis prove exaggerated and investors reassess the strength of Japan's underlying finances. They note that the government's investment income has been rising faster than debt service payments, and that Japan is among the few advanced economies where the ratio of debt to the size of the economy has been declining."

And tho the weakening of the yen started a little before US interest rate increases, there are some US-centric things that necessitated the US rate increases--like a tax cut (big beautiful bill), tariffs, and trump's unnecessary war of choice.

Those things result in higher prices/inflation, and higher interest rates are how markets/economic systems often react to inflation.

So the US can do things, that result in higher interest rates, and when the yen weakens it's because Japan doesn't have its own house in order. Ri-i-i-i-ight.

That's a little like JD Vance leaning on Zelenskyy, telling him to stop attacking russian refineries and its tanker fleet, because that is disrupting the oil market--when it's the US war on Iran that has caused the largest disruption of the oil market in history.

 

[Grandpa Frank]

Before the first attack on Iran , Trump announced the world could start buying "CHEAP" oil from Venezuela & the US and the Iran issue would not be a problem. Guess that didn't work out?