(CNN) — The United States bought the Japanese yen for the first time in more than a decade as “a signal of friendship,” President Donald Trump said Sunday. The rare bilateral intervention in Japan’s currency market was designed to prop up the yen from its 40-year low against the dollar.
“They have a weakening yen, and they wanted a little bit of help. And we’re always there for Japan,” Trump told reporters aboard Air Force One.
Trump’s comment confirmed the Friday joint action by the US and Japan to reverse the continuing weakening of the yen, whose depreciation has been exacerbated this year by increasing energy costs due to the Iran war.
The US has interests in shoring up the yen because a stronger dollar makes American exports pricier for foreign consumers. Similarly, while a weak yen benefits Japanese exporters – and foreign tourists who go to Japan – it also increases the cost of imports like oil and gas, fueling inflation.
Japan’s Finance Minister Satsuki Katayama said in a Monday statement that the Friday action “countered excessive volatility and disorderly movements in the Japanese yen in recent months.”
The Financial Times first reported Friday that the Federal Reserve Bank of New York sold euros for yen on behalf of the Treasury Department, citing people familiar with the matter.
Trump said Sunday that supporting the yen would be “good for the world economy,” and that the US would benefit financially from the move without explaining how.
Treasury Secretary Scott Bessent also noted the intervention on X on Sunday, saying the Treasury Department “will not hesitate to participate in further joint intervention.”
“We strongly support Japan’s decisive market and monetary steps to correct the substantial undervaluation of the yen,” he said.
A Reuters photograph from President Trump’s cabinet meeting at Camp David on Friday showed Bessent had written on his notepad a “to-do” list of the incoming US purchase.
Taken over Bessent’s shoulder during an on-the-record portion of the meeting, the Camp David notepad bore the underscored words “To Do” followed by “Buy Japanese Yen (JPY) $5-10 bil.”
How did the yen get here?
Despite being one of the world’s top economies, Japan has long struggled with a weak yen. Owing to a recession and chronic deflation in the 1990s, Japan had kept its interest rates as low as zero or negative in the hope of rejuvenating the economy since then through the 2010s.
Even though Japan raised its interest rates in 2024, the yen has continued to decline as they remain lower compared to the rest of the world, as Western central banks aggresively hiked rates to fight inflation.
“Japan’s persistently low interest rates relative to those abroad, especially in the US, have encouraged international investors to borrow – or short – the yen and invest the proceeds in higher-yielding currencies,” said Hung Tran, a nonresident senior fellow at US think tank Atlantic Council and a former deputy director at the International Monetary Fund, in a report last month.
Additionally, substantial outward investment by Japanese companies, as well as foreign earnings of these firms remaining overseas, continued to weigh on the yen, Tran added.
For a country dependent on energy and food imports like Japan, the Iran war this year also posed outsized impacts, as it fights rising cost of living.
“Rising oil and gas prices worsen the trade balance and generate inflationary pressures,” said Sayuri Shirai, an economics professor at Keio University in Tokyo and a former board member of the Bank of Japan.
Such inflation suppresses purchasing power and limits economic momentum, providing limited support for a yen rebound, she explained in an analysis on the Australian National University’s East Asia Forum.
Could it reverse yen’s depreciation?
The Bank of Japan, the country’s central bank, had intervened in the markets to boost the yen in late April. While the earlier move briefly propped up the currency, it proved to be a temporary success.
Analysts are less optimistic that the latest intervention could fundamentally alter the broader course of the yen’s weakening.
Shusuke Yamada, chief foreign exchange and interest rate strategist of Japan at Bank of America Securities, said the conventional view is that foreign exchange intervention could “only buy time” in a Friday report.
For now, the yen has appreciated by a similar scale on the first day of intervention as it did during the previous episode. But the impact of the latest move is expected to be greater, given the historic joint nature of the intervention, British bank Barclays said in a Monday research note.
“Even if the JPY were to strengthen further in the near term, we continue to believe that longer-term downward pressures remain in place,” it said, referring to the currency.
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