US Bails Out Yen to Keep Japan Lending

The US intervened in Japan's currency market for the first time in decades by sending money to steady the yen, as Washington needs Tokyo's continued lending to fund its massive national debt. The Japanese economy has been struggling with a high debt-to-GDP ratio of over 235%, and its central bank is expected to raise interest rates again.

Japan holds the largest foreign ownership of US debt, which has grown from $4.9 trillion in 1995 to $40 trillion today. As Japan's currency weakens, it becomes harder for the US government to borrow, causing Treasury rates to rise and mortgage rates to increase as well.

The 'Japan carry trade' allowed Wall Street to borrow yen at near-zero interest rates and invest in US assets, pumping billions of dollars into the US economy. However, with Japan's interest rates rising, this flow of money has reversed, putting downward pressure on asset prices and causing inflation concerns.