US Yen Intervention Built to Fail: Analyst

The recent U.S. intervention in support of the Japanese yen may not be effective in producing a lasting recovery, according to Yardeni Research.

The move was triggered by the yen's significant decline to levels last seen in 1986, prompting President Donald Trump to describe it as a 'signal of friendship' and Treasury Secretary Scott Bessent to call the yen 'very undervalued.'

However, Japan's economic policies, interest-rate gap, and preference for a weaker currency continue to work against the intervention.

Prime Minister Sanae Takaichi's government wants to cut Japan's 8% consumption tax to 1% for two years and launch a $2.3 trillion investment programme financed through increased borrowing, which would benefit from a soft currency.

A stronger yen could reduce imported inflation but weaken exports, offsetting part of the planned fiscal stimulus, while faster Bank of Japan interest-rate increases would raise financing costs for a government carrying a heavy debt burden.