US Intervenes in Japan's Financial Market to Save Dollar System

The US Treasury has intervened in Japan's financial market to prop up the yen, which recently hit a 40-year low against the US dollar. The intervention is aimed at preventing a sell-off in US Treasuries, with Japan being the largest foreign holder of these securities.

Japan owns about $1 trillion in Treasuries, and preserving this asset means preserving the world's biggest buyer of US debt. If Tokyo were to dump its US Treasury holdings, it would make America's $40 trillion borrowing problem much more expensive.

The yen is a weak link in the global dollar system, according to Philip Pilkington, who notes that Japan can't raise interest rates without triggering zombie defaults, which would force Tokyo to dump its Treasuries and send American borrowing costs soaring.