Washington Steps In to Defend the Yen, But for Its Own Reasons

US Treasury Secretary Scott Bessent's recent actions are being watched closely by investors and analysts. The reason is not to support the Japanese economy, but rather to prevent Japan from selling its massive holdings of US government debt.

The yen has been in decline this decade and recently hit its lowest level against the dollar since 1990 at almost ¥164.

This fall was triggered by Prime Minister Sanae Takaichi's decision to cut consumption tax on food for two years from April 2027, which could further strain Japan's already high government debt-to-GDP ratio of around 250%.

The Bank of Japan may need to raise interest rates to make the yen's gains stick, but this would come with risks, including increasing debt servicing costs and strengthening the yen too much, potentially slowing down the economy or even sending it into recession.