US and Japan Unite Against Yen Speculators

The US and Japan have joined forces to combat speculative bets against the yen. The effort follows months of preparation and marks a rare alignment of interests between the two nations on exchange rates.

Japanese Finance Minister Satsuki Katayama said she spoke with US Treasury Secretary Scott Bessent around 10 times, including a three-and-a-half hour meeting in May during which they discussed exchange rates. The talks were intensified after Japan's huge yen-buying intervention between late April and early May failed to reverse the yen's downtrend.

The shared currency anxiety has added pressure for the Bank of Japan (BOJ) to persist with rate hikes, despite a slow pace of hikes that has left the central bank behind the curve in addressing inflation. The US Treasury's semi-annual currency report on July 24 echoed Tokyo's warning against excessive yen volatility and pledged to continue 'close consultations' with Japan on exchange-rate matters.

The joint effort culminated in the BOJ raising interest rates to a 31-year high of 1% last week, following US Treasury Secretary Scott Bessent's verbal support for a stronger yen. The move was seen as crucial in addressing inflation and reducing excessive exchange rate volatility. Markets now see the BOJ's September meeting as live, with some analysts predicting a near-given rate hike.