The Japanese government is touting the U.S. purchase of yen as a sign of Washington's trust in the Sanae Takaichi government's economic policy. Japanese Finance Minister Satsuki Katayama said on the 4th that "the United States is giving high marks to Japan's economic policy." But a closer look at how the United States bought yen suggests the calculation was driven more by protecting its own inflation and Government Bonds market than by supporting an ally.
On this day, Finance Minister Katayama cited as evidence of international confidence the fact that U.S. Treasury Secretary Scott Bessent mentioned "Abenomics" in the statement announcing the currency intervention. Katayama told Bloomberg on the 4th (local time), "The U.S. side very highly values Japan's strong economic measures, and I understand that this point is clearly reflected in the statement," she said. However, Katayama did not answer a rebuttal question asking whether "it was not a high valuation, but rather that Japan's currency and fiscal policy caused the yen to depreciate and the United States stepped in."
Exchange-rate intervention is not just the government soothing the market with words, but actual trades of directly buying and selling currency in the foreign exchange market. To push up the yen's value, one can sell other currencies and buy yen. This time, instead of selling its own currency, the dollar, as usual, the United States sold euros it held. The New York Times (NYT), citing currency analysts, reported that "the United States chose a method that props up only the yen's value without shaking confidence in the dollar." The Financial Times (FT) also noted that the U.S. Treasury's Exchange Stabilization Fund held only euros and yen.
If the dollar is sold in large quantities, its value falls, and the prices of oil and imports that the United States buys rise accordingly. Experts said the United States structured the transaction from the outset to avoid pushing its own inflation back up while helping ally Japan with this intervention.
If Japan were to buy yen in the foreign exchange market without U.S. help, it would need dollars, which serve as a key currency. The most direct way to raise dollars is to sell U.S. Government Bonds. Japan is the world's largest holder, with about $1 trillion (about 1,428 trillion won) in U.S. Government Bonds. Japan holds about 4% of the outstanding Government Bonds issued by the United States.
If Japan sells U.S. Government Bonds to intervene in its exchange rate, a flood of bonds would hit the market at once, causing bond prices to plunge. In that case, more interest must be attached to the bonds for them to sell in the market, pushing up U.S. Government Bonds yields. Naturally, the interest the U.S. government pays on its borrowing rises, and rates on mortgage loan and car installments that ordinary Americans bear follow higher. The NYT reported that the Trump administration is concerned that rising lending rate could galvanize midterm voters, and that this intervention appears designed with the bond market in mind. According to the FT, the 10-year U.S. Government Bonds yield is nearing 4.7% annually, and the 30-year yield has exceeded 5%.
After this intervention, the United States even opened a separate lending window to prevent Japan from selling U.S. Government Bonds later. The Federal Reserve's FIMA repo is a collateral lending window that allows foreign currency authorities holding U.S. Government Bonds to temporarily park the bonds at the Fed and borrow dollars without selling them into the market. The limit is $60 billion (about 85 trillion won) per counterparty per day. Finance Minister Katayama said, "We will use this window when defending the yen going forward." Minister Bessent, in announcing the yen intervention on the 2nd, called for "further increasing" this FIMA repo limit. Goldman Sachs said in a report, "The fact that U.S. authorities approved use of this window means the U.S. side sees a risk that exchange-rate intervention could push up U.S. Government Bonds yields." The FT wrote on the 4th that "it is closer to an intervention supporting U.S. Government Bonds than one supporting the yen itself."
If the yen's depreciation is left alone, the tariffs the Trump administration imposed on Japan will be blunted. The weaker the yen gets, the more the dollar-converted prices of cars and machinery and machine tools, where Japan has strength, decline. This allows exporting corporations to partially offset tariff burdens. Bloomberg reported on the 30th of last month that as the yen fell to its lowest level in 40 years, export giants like Toyota met a tailwind that eased the burden of U.S. tariffs and higher oil prices. By intervening to lift the yen, the United States can both help an ally and revive the effectiveness of its own tariff policy.
However, there was also a counterargument that artificial intervention would not fundamentally reverse the yen's weakness. Robin Brooks, senior fellow in economic studies at the Brookings Institution, told the NYT, "It's not that currency speculators drove the yen into undervaluation and pushed its value down," adding, "The yen is falling because Japan's public liability is so large." According to the International Monetary Fund's (IMF) World Economic Outlook released in April, Japan's government debt-to-GDP ratio this year is 204.4%, the highest in the world. It is 78.6 percentage points higher than the United States (125.8%) and about four times Korea's (54.4%).
Before this intervention, the United States cited the pretext of allies' economic security. Minister Bessent wrote on social media on the 2nd, "The Trump administration delivers results for America's trusted partners. Economic security is national security." President Trump said, "The Japanese yen has weakened and Japan wanted a bit of help. We are always on Japan's side." But it later emerged that about a decade ago, Bessent worked as a chief investor at the George Soros fund and made $1 billion (about 1.4 trillion won) by betting on a falling yen.
Some assessed that political calculations also played a significant role. As the yen fell, Prime Minister Takaichi's approval ratings sank. In Japan, criticism continues over a situation where people can't even properly travel overseas. Ed Al-Hussaini, a portfolio manager at Columbia Threadneedle, told the NYT, "Looking at domestic approval ratings for the Takaichi cabinet and Takaichi's investment pledges to the United States explains the timing of this intervention." Japan last year pledged to invest more than $500 billion (about 714 trillion won) in U.S. manufacturing.
By the same logic, one can infer why the United States intervened in the yen but did not directly buy won. Unlike the yen, the won is not a currency widely funded and used by global financial institutions. Even if Korea's foreign exchange authorities defend the won, neither the U.S. Government Bonds market nor U.S. tariff policy would be shaken. The potential losses for the United States to enter the market directly and defend it are not that large.
Mark Sobel, a former U.S. Treasury official, told the NYT, "Unless Japan presents a plan to address the root problems behind the yen's weakness and the United States participates in that plan, it is unwise for the United States to intervene in the market to prop up the yen's value," adding, "The Treasury's Exchange Stabilization Fund is not a hedge fund." The Exchange Stabilization Fund is money entrusted by the U.S. Congress to the Treasury to calm the market when the dollar's exchange rate swings, not funds run to earn profit.