- The US aided Japan in a significant rebound of the yen against the dollar
- The yen closed at 157.40, its strongest since early May
- US Treasury Secretary and Japanese Finance Minister coordinated yen purchases
The United States has moved to help Japan to mark the most significant rebounds in the yen since the currency began its years-long decline that's stoked inflation in the Asian nation and rippled through global markets.
On Friday, the yen closed at 157.40 to the dollar, the strongest since early May. Just two days prior, the Japanese currency was around the weakest levels since 1986, raising concerns in Tokyo as rising import costs impact businesses and consumers.
Yen's rebound was fueled by a combination of direct purchases of the yen, calls by officials to banks that trade the currency and persuasion by US Treasury Secretary Scott Bessent and Japanese Finance Minister Satsuki Katayama. Bessent, indicated that he thinks the yen is too weak, Bloomberg News reported.
The US' support was also reflected when Reuters published a photograph of a notepad in front of Bessent at a cabinet meeting in Camp David on Friday. Under a “To Do” title, it was written “Buy Japanese Yen (JPY) $5-10 billion.”
Marking one of tighest coordination between the two countries in decades, here we explain why the US has joined Japan to boost Yen.
Japan is the largest holder of U.S treasuries. To boost the yen, Japan sells foreign currencies, which primarily includes US treasuries and uses the proceeds to buy its currency. As Japan liquidates a significant portion of its Treasury holdings to boost its currency, the Treasury prices are likely to become lower and yields higher.
Borrowing costs in the US are already under pressure. The 30-year Treasury yield just jumped above 5.2%, which is its highest level since 2007. Meanwhile, nearly one-third of US government debt must be refinanced within the next year. At today's higher rates, the government will have to roll trillions of dollars of debt.
Hence, by boosting yen along with Japan, the US is seeking to stabilize the currency before Tokyo is forced to sell even more Treasuries and push American borrowing costs higher as further collapse of Japanese currency is expected to become an American interest-rate problem.
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