Japan’s Ministry of Finance reportedly expended an unprecedented ¥15.4 trillion ($97.4 billion) between late July and late August in efforts to stabilize the yen amid its historic decline. This intervention was notably supported by the Federal Reserve Bank of New York, led by US Treasury Secretary Scott Bessent, which sold euros to purchase yen, contributing an estimated $5 billion to $10 billion to the operation.
On July 31, the US Treasury Department and Japan’s Ministry of Finance conducted a coordinated currency intervention for the first time since 1998. The joint action aimed to counter the yen’s rapid depreciation, which had plunged the currency below the ¥164 level against the US dollar, marking its weakest point since December 1986. Following the intervention, the yen briefly strengthened to around ¥155 per dollar.
The sharp decline of the yen, which hit a 40-year low during mid-2026, has raised concerns for both Tokyo and Washington, underscored by unusually candid remarks from Japan’s Finance Minister Satsuki Katayama. Katayama disclosed that US President Donald Trump expressed apprehension over the yen’s weakness during a summit with Japanese Prime Minister Sanae Takaichi, highlighting a shared unease about the currency’s ongoing slide despite intervention efforts.
The US dollar’s strength against the yen and other major currencies has been driven by strong US economic data, a hawkish Federal Reserve stance, and surging US bond yields. The depreciating yen has complicated Japan’s economic environment by exacerbating costs for energy imports, which were already elevated due to geopolitical tensions stemming from the US-Israeli conflict with Iran. This dynamic has intensified fears of an inflation overshoot in Japan and poses challenges for policymakers on both sides.
Japanese government bond yields have also reacted to market pressures, with the benchmark 10-year yield climbing to a three-decade high of 3.115% after a sharp selloff in US markets. The yen’s gains following the July intervention proved short-lived, as it traded near ¥159 per dollar recently—close to analysts’ median six-month forecast of ¥157.
Market participants remain attentive to global monetary policy trends, noting that major central banks have continued to raise interest rates to counter inflationary pressures linked to Middle East instability. These moves suggest that the interest rate differentials between Japan and other economies are unlikely to narrow soon, which could limit near-term upside for the yen.
While a weaker yen tends to benefit Japanese exporters by increasing the value of overseas earnings when converted back to yen, it also raises the cost of imported goods, notably energy and food, affecting domestic consumers. The yen has traditionally served as a funding currency for carry trades, where investors borrow in low-yield yen to invest in higher-yield currencies such as the US or Canadian dollars.
Japan’s top currency diplomat, Atsushi Mimura, emphasized the significance of Tokyo and Washington’s recent intervention warning, urging markets to recognize its seriousness. The US participation was historically rare, underscoring the symbolic importance of the joint effort.
A sustained yen crisis could have broader implications, given Japan’s status as the largest foreign holder of US Treasury securities, valued above $1 trillion. In a severe scenario, Japan might be forced to reduce these holdings, potentially triggering increased US Treasury yields and market volatility. Additionally, a substantially undervalued yen enhances competitiveness for Japanese exporters, potentially undermining US manufacturing objectives and trade policies.