US-Japan Intervention Fails to Arrest Yen Decline, Exposes Debt Ties

The US and Japan's joint intervention to support the yen has significant implications for global financial markets. On July 31, Tokyo and Washington conducted a coordinated action to arrest the decline of the Japanese currency, with the BOJ account data suggesting that up to $58.97 billion was spent on the operation.

Sayuri Shirai, an economics professor at Keio University's Faculty of Policy Management and former Bank of Japan policy board member, noted that US involvement sent a stronger signal than unilateral intervention by Tokyo alone. Coordinated action is likely to exert more persistent upward pressure on the yen, she said.

The Iran war has intensified the yen crisis by increasing energy costs for Japan and strengthening demand for the dollar. Approximately 95% of Japan's crude oil imports come from the Middle East, and much of that supply passes through or is affected by conditions around the Strait of Hormuz.

Japanese authorities have responded to the conflict by releasing national oil reserves and seeking alternative supply routes. However, higher oil prices and disrupted shipping create several connected problems for Japan, including increased demand for dollars to pay for imports and imported inflation that puts pressure on households and businesses.