US Fails to Stem Yen's Fall as Tokyo Faces Economic Meltdown

The Japanese yen has been in free fall since July, hitting a 40-year low due to low interest rates and uncertainty around the Iran war. The US stepped in last week with an unprecedented intervention, buying up yen for the first time in 30 years, which temporarily boosted its value. However, the gains were short-lived, and by Monday, the yen had fallen back by 1%, wiping out half of the gains made since the US intervention.

US Treasury Secretary Scott Bessent promised to do 'whatever it takes' to help stabilize Japan's currency, but a continued slide is predicted until further government intervention may be necessary. The true extent of the US package won't be revealed for a while, as only a cryptic note left by Bessent at a meeting at Camp David mentioned buying JPY 5-10 billion.

Japanese Prime Minister Sanae Takaichi believes that at least partial repatriation of Japan's vast overseas holdings, including $1 trillion of US securities, is necessary. An interest rate rise from the Bank of Japan to this end seems increasingly likely. Defending the currency from current reserves will not be enough.