Editor’s notice: Yin Xiaopeng is a professor on the Research Institute for Global Value Chains, University of International Business and Economics. The article displays the writer’s opinions and never essentially the views of CGTN.
On July 31, 2026, Japan’s Ministry of Finance and the US Department of the Treasury coordinated purchases of the Japanese yen. Japan’s Ministry of Finance formally confirmed the transfer on August 3, saying it was geared toward addressing extreme volatility and disorderly actions within the yen in latest months. It additionally mentioned additional coordinated intervention couldn’t be dominated out. Japan moreover indicated that it deliberate to utilize the Federal Reserve’s Foreign and International Monetary Authorities Repo Facility, or FIMA Repo Facility, sooner or later. This marked the primary coordinated yen-buying intervention by the US and Japan since 1998.
In the brief time period, the joint intervention shortly shifted market expectations. The yen strengthened from practically 164 per dollar, its weakest stage in nearly 40 years, to round 155.20 per dollar on August 3. But the yen didn’t proceed to strengthen in a sustained, one-way transfer. By August 10, the dollar-yen fee had climbed again above 158, suggesting that the increase from the joint intervention was already dropping momentum. This reveals that the most recent intervention was extra like an emergency brake, aimed primarily at curbing disorderly depreciation and deterring speculative buying and selling, moderately than essentially reversing the yen’s development.
Electronic boards displaying the alternate fee of the Japanese yen in opposition to the US dollar in Minato Ward, Tokyo, Japan, August 12, 2026. /VCG
The US participation within the intervention was pushed not just by its obligations to an ally, however by a mixture of things together with strategic safety, monetary stability and commerce competitors.
First, Japan performs an essential position within the US’ regional technique.
Whether inside the US-Japan alliance and the Quadrilateral Security Dialogue (Quad) framework, or by way of regional safety and financial cooperation preparations in East Asia, Japan performs an essential position and offers army and financial help for the US-led regional safety structure. In specific, because the US intensifies its strategic competitors with China and efforts to keep up its regional leverage, a critical deterioration in Japan’s financial stability attributable to disorderly yen depreciation, rising import prices and mounting fiscal and monetary pressures would weaken its means to function a strategic pillar in East Asia. Maintaining the essential stability of the yen and the Japanese financial system is subsequently additionally within the US curiosity in protecting its alliance system functioning and sustaining its strategic posture in East Asia.
Second, the US wants to stop Japan from promoting giant quantities of US Treasury securities to boost {dollars}.
If Japan needs to purchase yen immediately, it first must get hold of dollar liquidity. Selling its holdings of US Treasuries is one conventional manner to take action. According to US Treasury knowledge, Japan held about $1.1431 trillion in US Treasury securities as of the tip of May 2026, making it the most important international holder of US authorities debt. If Japan have been to promote Treasuries on a big scale to stabilize the yen, it may push down Treasury costs and drive up yields, thereby elevating financing prices for the US authorities and the broader financial system. Therefore, the US participation within the joint intervention, along with its push for Japan to make use of the FIMA Repo Facility, basically displays a desire for Japan to make use of its Treasury holdings as collateral to acquire {dollars} moderately than promote the securities immediately out there.
Third, an excessively undervalued yen may strengthen the value competitiveness of Japanese exports in dollar phrases, elevating considerations within the United States over commerce competitors and strain on its home industries. Supporting yen stability, subsequently, serves not solely to assist Japan cope with disorderly forex actions, but in addition to guard the US alliance system, Treasury market stability and American commerce pursuits.
From Japan’s perspective, the basis of its present predicament is that yen depreciation is not as efficient because it as soon as was in stimulating exports.
Since Japan’s financial takeoff within the Sixties, the nation has had a definite export-oriented financial mannequin. Japan’s home market is comparatively restricted, and aggressive merchandise comparable to vehicles, house home equipment and electronics have typically needed to depend on abroad markets in Europe and North America for large-scale enlargement after preliminary commercialization at house. Japan’s expertise reveals that even when an financial system grows into a significant financial energy, it might not essentially be capable of free itself from dependence on exports. The key query is whether or not its home market is giant sufficient to soak up the provision capability generated by its industrial system.
For a protracted interval prior to now, yen depreciation introduced extra advantages than prices to Japan. A weaker yen may decrease the relative costs of Japanese items in worldwide markets and thereby help exports. The Bank of Japan’s long-standing accommodative financial coverage and efforts to stop extreme yen appreciation have been additionally carefully linked to this export-oriented development mannequin.
But that mechanism is now malfunctioning. As the relative competitiveness of Japan’s conventional industries has declined, yen depreciation has grow to be much less able to producing a comparable enhance in exports. At the identical time, Japan stays extremely depending on imports of power, meals and uncooked supplies. A weaker yen immediately raises import prices, fuels imported inflation and erodes family buying energy. In different phrases, the yen depreciation as soon as primarily translated into an export dividend, however is more and more turning into an import-cost burden. Japan’s present exchange-rate predicament shouldn’t be merely the results of speculative capital. It additionally displays deeper elements, together with declining confidence in fiscal and financial insurance policies, sustained capital outflows and modifications in industrial competitiveness.
Japanese vehicles for export are pictured in entrance of a container ship at a port in Nagoya, Japan, May 22, 2026. /VCG
Japan’s coverage changes are additionally constrained by its excessive stage of public debt. Since the Nineties, Japan has relied closely on fiscal coverage to deal with a chronic financial slowdown. When rates of interest fell to close zero and even into detrimental territory, the scope for additional financial easing turned severely constrained, leading to a basic liquidity entice. Although the Bank of Japan has begun normalizing financial coverage in recent times, excessive authorities debt nonetheless limits the scope for fast and substantial fee hikes. The International Monetary Fund estimates that Japan’s common authorities gross debt will probably be about 203% of its GDP in 2026. As low-interest debt is progressively refinanced at increased charges, the Japanese authorities’s curiosity funds may double between 2025 and 2031.
Most Japanese authorities debt is held by home buyers, offering a sure buffer for debt rollover and lowering the probability of a sovereign debt disaster within the brief time period. But the upper the debt ratio, the better the impression of rising rates of interest on authorities curiosity funds and financing prices. Japan subsequently can’t merely depend on aggressive fee hikes to help the yen. Doing so may stabilize the alternate fee whereas triggering a sequence response of pressures within the authorities bond market and on fiscal sustainability.
The direct quantity of funds concerned within the newest joint intervention can also be not the decisive issue. Media experiences confirmed that US Treasury Secretary Scott Bessent carried a notice at a Cabinet assembly on July 31 studying, “Buy Japanese Yen (JPY) $5-10 billion.” The notice doesn’t show that the total quantity was really bought, but it surely despatched a transparent sign to the market that the United States would possibly intervene immediately.
Compared with the big scale of the worldwide foreign-exchange market, direct purchases price billions and even tens of billions of {dollars} are inadequate to vary exchange-rate traits over the long run. The extra essential position of intervention is to change the expectations of speculators. Shorting the yen would not imply taking up solely Japan’s Ministry of Finance and the Bank of Japan, however probably additionally the US Treasury and the Federal Reserve Bank of New York. Some speculators subsequently closed their brief positions, additional pushing up the yen and triggering a fast rebound over a brief interval.
The Bank of Japan (BOJ) headquarters in Tokyo, Japan, July 31, 2026. /VCG
But speculative capital is not going to depart the market completely due to a single intervention. If the US-Japan interest-rate differential, Japan’s fiscal pressures, power import prices and financial development prospects stay essentially unchanged, markets will resume testing the Japanese authorities’s coverage tolerance after a quick interval of warning. The dollar’s rise again above 158 yen on August 10 is exactly a mirrored image of this logic.
Exchange charges are decided by market provide, demand and expectations within the brief time period, however by financial fundamentals in the long run. From the Eighties by the Nineties, Japan’s financial system and export competitiveness have been sturdy. Even when Japanese policymakers sought to curb extreme yen appreciation, the forex remained sturdy for an prolonged interval. The scenario is completely different these days. Japan has but to develop a brand new development engine able to changing its conventional aggressive industries. The stimulative impact of yen depreciation on exports has weakened, whereas structural pressures from increased import prices, fiscal burdens and inhabitants growing older proceed to build up.
Therefore, the US-Japan joint intervention can quickly stem the yen’s one-way decline, power speculative buyers to scale back brief positions, and purchase the Bank of Japan time to regulate financial coverage and the Japanese authorities time to rebuild market confidence in its fiscal sustainability. But so long as Japan’s financial fundamentals and the US-Japan interest-rate differential don’t enhance considerably, the joint intervention is unlikely to drive a sustained reversal within the yen. What in the end determines the yen’s medium- to long-term trajectory shouldn’t be what number of yen are bought in a single intervention, however whether or not Japan can rebuild its industrial competitiveness and financial development momentum, progressively normalize financial coverage with out destabilizing the federal government bond market, and restore market confidence in its fiscal coverage.
In this sense, the most recent US-Japan joint intervention carries three layers of significance: exchange-rate stabilization, alliance upkeep and monetary danger containment. It can alter the slope of the yen’s decline, however it’s unlikely by itself to vary the yen’s underlying development. Unless Japan succeeds in creating new sources of development, the yen may come underneath renewed strain after its short-term rebound.
Source: CGTN