CNN interviewed me today about the joint US-Japan intervention to strengthen the yen. We discussed why Washington did this, whether it will work, and fears that financial turmoil in Tokyo could raise interest rates in the US.
To see the interview, when you get to the photo of the Japanese currency toward the bottom with the CNN crawl line on the bottom and the arrow in the middle, click on the arrow and that will call up the video.
Bank of Japan (BOJ) data indicated that Tokyo may have sold almost $59 billion of US dollars to buy yen when it intervened in New York markets on Thursday, before Friday’s confirmed joint intervention with Washington. The US has not confirmed the size of its intervention, but a Reuters photograph of a notepad in front of Bessent during a cabinet meeting on Friday read: “To Do: Buy Japanese Yen $5-10 bil.” (see below)
Most experts cited in the press doubted that this move will be effective for more than a short while. Its impact may last longer than Japan’s sole intervention because it will put some fear into the hearts of traders. But it does not address the fundamentals that have weakened the yen by a third since early 2021. These include rising import prices for food and energy and the diminished ability of Japan’s exports to sell their wares without a weak yen, which lowers their export prices.
Many of the experts cited in the press focused on only one fundamental: the gap between American and Japanese rates. They argue that if the Bank of Japan (BOJ) hikes rates, that will do a lot to boost the yen. Scott Bessent also buys this theory and has been vocal about his “expectation” that the BOJ will hike rates and his fear that it is falling behind the curve. It is notable that the intervention occurred hours after the BOJ decided on Friday not to lift overnight rates from 1% to 1.25%.
Contrary to these views, the data says that higher rates in Japan will not be enough to reverse the yen’s fall very much. While there was a strong correlation from 2021 to early 2024, that correlation ended in the spring of 2025. Even though the gap between American and Japanese 10-year government bonds has halved from 4% in October 2024 to less than 2% today, the yen has weakened further over the same period: from ¥150/$ to ¥164 just prior to the intervention (see below).
For previous posts and memos discussing the yen, interest rates in Japan, and Bessent’s desires on the yen and interest rates, and impact on the US, click on the following below the image. To see the interview, click the arrow in the image below:
Signal Vs. Noise On JGBs And Yen
Will BOJ Rate Hike to 1% Be Tipping Point, Or Just A Step In Gradual Normalization?
Bessent Hints BOJ Should Raise Rates to Boost Yen
Beijing Tells Private Banks to Trim Holdings Of US Government Debt
Decline of Yen “Carry Trade” Won’t Destabilize US Finances
Bessent Falsely Blames Japan For Stock Market Revolt Over Trump Threats Over Greenland
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