US Treasury's Yen Intervention Raises Questions About Currency Activism

Last week's surprise announcement by the U.S. Treasury Department to assist Japan in propping up the yen has raised questions about its motivations and policy implications.

The yen had dropped to a 40-year low of 163 per dollar, but after the intervention, it surged to 155 per dollar before surrendering half of its gains.

Japan's motive for intervening is to prevent the yen from weakening further, which would boost import prices and add to inflation pressures.

The U.S. Treasury's involvement aims to lessen the need for Japanese authorities to sell Treasuries to fund their currency market intervention, as Japan holds $1.1 trillion in U.S. debt.