US Yen Support Built to Fail
Japan's economy continues to work against U.S. efforts to support the yen, according to Yardeni Research.
The U.S. intervened in the currency market for the first time since 2011 on July 31, when President Donald Trump described the move as a 'signal of friendship.' However, this intervention is unlikely to produce a lasting recovery due to several factors.
Japan's economic policies favor a soft currency, which supports exporters and corporate profits. Prime Minister Sanae Takaichi's government plans to cut Japan's 8% consumption tax to 1% for two years and launch a $2.3 trillion investment programme financed through increased borrowing.
A stronger yen could reduce imported inflation but would weaken exports, offsetting part of the planned fiscal stimulus. Additionally, faster Bank of Japan interest-rate increases would raise financing costs for a government carrying a heavy debt burden.