Why the U.S. Joined Japan’s Yen Intervention: A Warning for Asia
In a rare show of coordinated currency diplomacy, the United States and Japan intervened last week to prop up the yen. Treasury Secretary Scott Bessent made it clear on Tuesday: the move was not just about Tokyo. It was about preventing a broader Asian economic crisis.
Speaking to CNBC, Bessent argued that an overly weak yen poses a serious risk to stability across the region. He pointed to the Asian financial crisis of the late 1990s as a cautionary tale, noting that an undervalued yen contributed to that turmoil. “If the yen were to weaken substantially, then the other currencies would follow it,” he said.
Bessent highlighted volatility in South Korea’s won and persistent concerns about China’s yuan. He stressed that given Japan’s trade flows, its economic size, and its role in global savings, a stable yen is crucial. “The Japanese government understands that, and we are proud to stand with them in implementing their policies and help them stabilize the region,” he added.
What Happened in the Currency Market?
On Friday, during New York trading hours, the U.S. and Japan stepped in to buy yen after the currency touched a 40-year low against the dollar in late July. It was the first yen-buying intervention since 1998, when the world was in the grip of a financial crisis. The last joint intervention of any kind was a yen-selling action in 2011, following Japan’s devastating earthquake and tsunami.
Bessent confirmed the intervention on Sunday, alongside Japanese Finance Minister Satsuki Katayama. Both said they would not hesitate to act again if needed. President Donald Trump described the move as a “signal of friendship” and said it would benefit the U.S. economy and the global economy.
Why the Yen Is Under Pressure
The yen’s weakness stems largely from interest rate differentials between the U.S. and Japan. But since Prime Minister Sanae Takaichi took office in October last year, market jitters have grown. Takaichi has backed the late Shinzo Abe’s “Abenomics” agenda of aggressive monetary easing, fiscal stimulus, and structural reforms, while pursuing expansionary fiscal policies. Investors worry about Japan’s fiscal deterioration.
Bessent praised Japan’s long-term efforts to escape deflation. “Japan has come out of deflation, and they’re back,” he said. He believes that market signals alone are not enough; policy and fundamentals must drive stability. “The U.S. decided to join because we are very optimistic on their policy path.”
What About the Bank of Japan?
When asked whether the Bank of Japan should raise rates, Bessent declined to prescribe policy. He said he has known Governor Kazuo Ueda for over 15 years and trusts him to do what is needed. The two are expected to meet at the G20 finance ministers’ meeting in North Carolina later this month.
What Does This Mean for Guyana and the Caribbean?
For a small, open economy like Guyana’s, currency instability in Asia may seem distant. But it is not. A weak yen can trigger competitive devaluations across emerging markets, including in Latin America and the Caribbean. That could affect trade competitiveness, commodity prices, and capital flows. Bessent’s warning is a reminder that currency wars hurt everyone, especially nations that rely on stable global markets.
Bessent summed it up bluntly: “We will do whatever it takes to support Japan in a way that helps the American economy, the American taxpayer, and stabilizes the global economy.”