RESOLVING THE LEDGER
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0 Share Newsweek is a Trust Project member See more of our trusted coverage when you search. Prefer Newsweek on Google to see more of our trusted coverage when you search. The United States' decision to join Japan in intervening to strengthen the yen, the first such joint action in nearly 30 years, has successfully lifted the currency for now. Analysts warn, however, that the long-term outlook for the yen remains challenging.
The dollar weakened sharply against the yen after U.S. President Donald Trump and Japanese Finance Minister Satsuki Katayama confirmed the intervention.
The greenback was trading at near 156 yen when markets closed Monday, marking a significant retreat from the near four-decade highs above 163 yen seen in July. The move marked the first joint U.S.-Japan intervention to strengthen the yen since the 1998 Asian Financial Crisis.
U.S. Treasury Secretary Scott Bessent said the two sides would maintain close communication and that Washington would "not hesitate" to participate in further joint intervention.
Newsweek reached out to the Bank of Japan via email for comment.
The yen has weakened largely because interest rates in the United States remain much higher than in Japan, making the dollar more attractive than the Japanese currency .
A weak yen also drives up the cost of imports, fueling inflation and raising living costs for Japanese households.
While the weakened currency has boosted Japan's appeal as a travel destination and helped drive a tourism boom, it squeezes consumers through higher import prices.
The U.S.'s war with Iran has further complicated matters, as Japan imports roughly 80 to 90 percent of its crude oil through the Strait of Hormuz. While fuel prices have been capped at around 170 yen per liter in response to the energy crisis, authorities are already weighing the possibility of raising that ceiling, the Kyodo news agency cited sources familiar with the matter as saying last month.
Trump hailed the U.S.'s "good relationship with Japan" during remarks to reporters Sunday.
"They have a weakening yen, and they wanted a little bit of help, and we're always there for Japan," he said, joking that Japan had been "very good to us, with the exception, of course, of Pearl Harbor." Trump also described the intervention as "a signal of friendship" that would benefit both the U.S. and the global economy .
"That comment suggests Trump sees Japan not only as a key ally in deterring China, but also as a partner in advancing his broader economic agenda, including reducing America's trade deficit," Ken Moriyasu, a senior fellow at the Hudson Institute specializing in Eurasian and Indo-Pacific strategy, told Newsweek .
Japan was the first major economy to agree to a strategic trade and investment framework after the sweeping tariffs Trump imposed on most of the world. The framework includes up to $550 billion in investment in the United States.
"If the yen is trading at ¥163 per dollar rather than ¥155, financing a $550 billion commitment requires roughly ¥4.4 trillion more," Moriyasu said. "Supporting the yen therefore helps reduce the yen-denominated cost of Japan fulfilling its commitment."
Trump's intervention also comes at a politically sensitive time for Takaichi, whose approval rating last month fell below 60 percent for the first time since she took office in October, according to a Yomiuri Shimbun poll, with 71 percent of respondents dissatisfied with her handling of rising living costs.
Adding to the Takaichi government's troubles is China's propaganda and economic pressure campaign aiming to oust her over her push to strengthen Japan's Self-Defense Forces and earlier comments suggesting a Chinese blockade of Taiwan could be grounds for a military intervention.
"Some in Beijing may hope that, having helped stabilize the yen, Trump will now use that goodwill to press Takaichi toward accommodation with China," Moriyasu said. "Trump's recent actions suggest he continues to view deterring China as a central strategic objective, even as he pursues transactional diplomacy with allies."
"That's bad news for a bond market where yields have already skyrocketed, driven in part by the U.S.-Iran war, higher oil prices, and uncertainty over Fed policy," Nic Puckrin, a former Goldman Sachs analyst and founder of crypto market analytics firm Coin Bureau, told Newsweek .
A wave of Treasury selling by Japan could push yields even higher, forcing the U.S. government to pay more to borrow and potentially increasing borrowing costs across the broader economy.
The U.S. intervention only "buys time but doesn't fix the problem," Puckrin said.
"The huge gap between U.S. and Japanese interest rates remains, meaning the yen carry trade—where investors borrow cheaply in yen to buy higher-yielding assets like Treasuries—still looks attractive," he said. "Japan would need to raise rates by around 2.5 percentage points to compete with U.S. rates. Traders also know America's efforts are a stopgap, which is why the effect has been relatively muted so far."
Tokyo's roughly $70 billion of spending to support the yen in April and May produced only short-lived results. The joint intervention alongside the U.S. should prove somewhat more durable.
It "reduces the risk of a sharp yen depreciation and gives the Bank of Japan more time to assess the impact of the Middle East conflict and past rate hikes on the economy," Shigeto Nagai, head of Japan economics at Oxford Economics, said in a statement shared with Newsweek .
Even so, Nagai expects the yen to remain relatively weak through the end of the year, with the dollar returning to around the 160-yen level before the Japanese currency gradually strengthens in 2027 as the Bank of Japan continues raising interest rates and the Federal Reserve begins cutting them.
Contact Newsweek editors on this story: Frances Mao and Sam Wilson .
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