US-Japan Intervention Fails to Address Root Cause of Yen's Long-Term Decline

The US and Japan jointly intervened in the foreign exchange market to prop up the yen after it plummeted to a nearly 40-year low. The move was coordinated between the two countries' finance ministries, with Japan's Finance Minister Satsuki Katayama saying that the joint action 'countered excessive volatility and disorderly movements in the Japanese yen in recent months.'

The intervention is seen as a response to concerns over the yen's long-term depreciation trend. According to US media reports, President Donald Trump said that the US gained a 'financial benefit' from the move, highlighting the transactional logic behind the US administration's approach to alliances.

Economists pointed out that the joint intervention is unlikely to fundamentally reverse the yen's long-term depreciation trend over the medium and long term. The root cause of the yen's weakness lies in the persistently wide interest rate gap between the US and Japan, with Japan's policy rate standing at around 1 percent compared to over 3.5 percent in the US.

The FIMA Repo Facility, introduced in 2020, allows Japan to raise dollar liquidity without outright sales of US Treasuries, potentially easing funding pressures on Tokyo for intervention. However, experts warned that the joint intervention may only provide temporary relief and could even backfire if investors view it as going against market rules.