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US efforts to prop up the yen risk doing more harm than good

Reversing the yen’s long-term decline ultimately rests on Japan’s ability to take its real interest rates out of negative territory – without triggering market panic

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A person walks past an electronic board showing Japan’s Nikkei index chart in Tokyo on August 6. At a time when the US is the main source of volatility in global markets, Washington’s participation in the Japanese currency intervention adds another layer of uncertainty. Photo: AP

Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.

Published: 4:30pm, 6 Aug 2026

Has the interminable decline in the yen finally run its course? Since the beginning of 2022, Japan’s currency has fallen a staggering 36 per cent against the US dollar. Despite the resolve of the Bank of Japan (BOJ) to keep raising interest rates, the surge in Japanese bond yields over the past year, and frequent interventions by the government to support the currency, the yen has continued to weaken.

On July 23, it dropped to its weakest level against the greenback since 1986, sliding past the 163 per dollar mark. However, on July 31, Japan’s finance ministry intervened in concert with the US Treasury Department to support the yen, the first time since 1998 both countries have teamed up to prop up Japan’s currency via outright purchases.

The surprise coordinated intervention has caused the yen to strengthen to 157 per dollar, its strongest level since May 12. The fact that the US was directly involved indicates a stronger commitment to shoring up the currency. In a report on August 2, Citigroup said “coordinated intervention may be a turning point” for the yen. HSBC, in a report on August 3, said “joint intervention will likely buy more time than earlier solo intervention”.

Yet no sooner did the joint operation occur than investors began to question the rationale for US participation – especially given US Treasury Secretary Scott Bessent’s unusually assertive approach to shaping Japanese economic policy – and whether it would help or hinder efforts to stabilise Japan’s currency and bond markets.

Japan’s position as the largest foreign holder of Treasuries has fuelled concerns in the White House about Japanese sales of US debt to fund interventions to support the yen. Bessent has made it clear that the yield on the 10-year Treasury bond is the most important gauge of confidence in the US economy. On July 31, the 10-year yield stood at 4.7 per cent, its highest level since US President Donald Trump began his second term.

A notepad in front of US Secretary of the Treasury Scott Bessent reads “To Do: Buy Japanese Yen” as he participates in a cabinet meeting at Camp David, Maryland, US, on July 31. Photo: Reuters

This explains why Bessent wants Japan’s government to make use of the so-called Foreign and International Monetary Authorities Repo Facility, a Federal Reserve liquidity tool that allows central banks to use their Treasury holdings as collateral to access dollars. This would allow Japan to intervene in the currency markets without having to sell Treasuries when trading dollars for yen.