The first US-Japan coordinated purchases of yen in decades was “a signal of friendship,” according to President Donald Trump. “The Trump administration delivers for America's trusted partners,” Treasury Secretary Scott Bessent said.
Most observers doubt it was so simple.
“We know what the profile of Mr. Trump is — there are no free lunches,” said Jonathan Fortun, a senior economist at the Institute of International Finance in Washington.
Fortun and other analysts described a range of US interests at stake in helping Japan pull the yen back from near four-decade lows against the dollar. As with Argentina last year, part of it is likely about Trump helping a fellow conservative leader — Prime Minister Sanae Takaichi, whose poll ratings have subsided lately.
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The administration also wants Japan to keep delivering on a $550 billion commitment to invest in US projects, and may seek further concessions in trade talks. With Tokyo set to revamp key national security priorities later this year, higher defense spending could easily be a Trump ask — and one he's made before.
Above all, the clearest rationale for the US to join Japan on Friday in purchasing yen comes from Bessent's consistent signals of concern about Japanese reverberations into the $31 trillion Treasuries market. The Treasury chief has made clear 10-year yields are his key benchmark, and those hit the highest since he took office on Friday — the same day as the intervention.
In his Sunday post, Bessent drew a link to US securities by highlighting a facility that Japan can use to avoid selling Treasuries when trading dollars for yen. That's important because Japan is the largest foreign holder of US debt. Back in January, he was vocal in pressing Finance Minister Satsuki Katayama to contain a selloff in Japanese government bonds that had spilled into Treasuries.
“Defending Treasury yields against a spike is probably higher in the priorities than some kind of geopolitical game,” said Charles Lichfield, economic foresight and analysis director at the Atlantic Council in Washington.
The White House referred to Trump's remarks on Sunday when asked for comment. The Treasury didn't respond to a request for comment. The yen as of Tuesday morning continued to trade well above pre-Friday intervention levels.
Going forward, Bessent almost certainly wants the Bank of Japan to raise interest rates, economists said — a move that could support the yen and limit contagion from Japanese government bonds.
“It makes sense to see coordinated FX intervention and pressure for further BOJ rate hikes as part of the same package,” said Yusuke Matsuo, senior market economist at Mizuho Securities. “Ultimately, their objective is to prevent higher Japanese yields from spilling over into US yields,” he said of American officials.
Bessent started putting a focus on the BOJ last year, saying it had fallen behind the curve in countering Japan's inflation, and calling on the government to give the central bank space to wage that battle. In a Friday post on X noting “close coordination” with Japan, he again name-checked the BOJ, saying he looked forward to meeting with Governor Kazuo Ueda in August.
Last month's semiannual foreign-exchange report from the Treasury Department highlighted that monetary policy normalization would help anchor inflation expectations and reduce excessive exchange rate volatility.
Trouble is, Takaichi's record has been one of favoring monetary stimulus — a legacy of her association with the late Prime Minister Shinzo Abe, who had regretted backing BOJ rate hikes in 2006-07 and later pushed for unprecedented easing.
“What happened in that period is a big memory,” said Fortun at the IIF. “But the truth is that the path to have a better-behaved yen is precisely to catch up on interest rates.”
Economists already had expected the BOJ to raise interest rates by the end of the year before Friday's joint intervention. Trading in overnight swaps on Monday pointed to almost a 50% chance of the central bank moving in September, with the prospects of a move by October at around 90%.
The two sides have a shared interest in containing currency market pressures — effectively buying time before the BOJ's next move to raise rates and preventing instability in the bond market from getting worse, said Yuji Saito, executive adviser at SBI FXTrade Co., a currency-trading platform.
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Another potential step to contain Japanese government bond yields, which have soared to multi-decade highs in recent weeks, is a shift in asset purchases. Katayama has encouraged the nation's public pension fund to increase domestic investments and floated the idea of allowing Japanese government bonds to be held in tax-free savings accounts.
“Considering what the US likely wanted to achieve through any negotiations, they could prove to be an effective response,” Matsuo said of such proposals.
Investment Pledge
Japan is preparing to revise its three key national security documents later this year — a potential opportunity for Washington to push for spending beyond the current target of about 2% of gross domestic product. The US has repeatedly demanded that NATO and its other allies spend around 3.5% of GDP on defense, but it hasn't made that request directly to Japan, according to Japanese officials.
As for the $550 billion investment package Japan agreed to last September in exchange for lower US tariffs, project signings have come slowly. One features a SoftBank Group Corp.-backed $33 billion gas-fired power plant in Ohio.
The unprecedented currency cooperation could give Washington additional leverage to accelerate those commitments, and boost Tokyo's ability to make good on its commitments.
“If you want Japan to keep investing in the US, they need to be able to afford it,” said Lichfield at the Atlantic Council. “It's more difficult if the yen is too weak.”
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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