US and Japan Unite to Rescue Yen Amid Dollar Index Slide

The US and Japan joined forces to stabilize the Japanese yen, which had plummeted to near 164 per dollar. The rare joint operation between the U.S. Treasury and Japan's Ministry of Finance forced the currency back up by about 5%. This was not a charity effort, but rather a move to protect American interests.

The collapsing yen had been inflating import bills for Japanese households, putting pressure on Prime Minister Sanae Takaichi's administration. Tokyo's attempts to defend its currency were failing due to a massive interest-rate gap between the US and Japan. The U.S. rates sat high while Japanese rates barely budged.

The US had multi-trillion-dollar reasons for intervening, including protecting American tariffs from being neutralized by a severely devalued yen. Japan holds over $1 trillion in US Treasuries, and if the yen kept sliding unchecked, Tokyo might have been forced to dump massive amounts of US government debt to fund local currency rescues.

The operation worked as follows: the U.S. Treasury sold euros instead of dollars to buy yen, while Tokyo utilized liquidity facilities to access dollars without triggering a chaotic bond sell-off.