“Even the U.S. Is Buying Yen”: Why Fears of a ¥200-Per-Dollar Exchange Rate Persist Despite Unprecedented U.S.-Japan Coordination

U.S. Treasury Joins Japan in Selling Euros and Buying Yen to Defend Currency
Planned 1% Food Consumption Tax Cut Creates Annual $45 Billion Revenue Shortfall
Without Funding for Tax Cuts and Monetary Normalization, Yen Depreciation Pressures May Resurface

The United States has directly joined Japan’s campaign to defend the yen by conducting coordinated purchases of the currency. The move is seen as reflecting concerns that yen depreciation could bolster Japanese exporters’ competitiveness while also unsettle the U.S. Treasury market. Yet the durability of market intervention remains clearly limited as Sanae Takaichi’s government pursues sweeping consumption-tax cuts and weak fiscal conditions undermine confidence in the yen. With fiscal unease, rising government bond yields and yen-driven import-price pressures converging, expectations are growing that yen weakness could re-emerge unless Japan corrects its policy stance.

U.S. Makes Large-Scale Purchases to Curb Yen Weakness

According to Reuters on August 3, signs emerged that the U.S. government had intervened to curb the yen’s decline through a memo belonging to Treasury Secretary Scott Bessent during a federal cabinet meeting at Camp David, Maryland, on July 31. Beneath an underlined “To Do” heading, the memo read: “Buy Japanese yen (JPY) $5 billion–$10 billion.” No other text was visible, while Bessent’s nameplate on the conference table appeared directly above the note.

Indications of intervention had emerged even before the photograph was released. Reuters reported on July 30, citing sources familiar with the matter, that the Treasury Department had notified several banks it could intervene in the yen market. Japanese authorities also moved to stem yen weakness in Tokyo trading on July 31, and the currency strengthened noticeably that day. LSEG data showed the dollar falling about 0.8% in roughly 40 minutes, from around ¥158.9 at 4:14 p.m. to ¥157.6 shortly before 5 p.m. That decline represented an equivalent appreciation in the yen.

The intervention followed months of advance coordination. The Federal Reserve Bank of New York conducted a rate check with market participants in January, asking about transaction conditions, while U.S. and Japanese finance officials continued consultations on exchange-rate issues thereafter. Japanese Finance Minister Satsuki Katayama said she had held roughly 10 discussions with Bessent this year covering exchange rates and other matters, including a three-and-a-half-hour meeting with dinner during Bessent’s visit to Japan in May. Washington’s participation appears to have been seriously considered once Tokyo concluded that unilateral intervention would not be enough to halt the yen’s slide.

Table 1. Key Details of U.S.-Japan Coordinated Yen Intervention

Further Joint Intervention Signaled

The Financial Times also reported on July 31, citing three sources familiar with the matter, that the Treasury Department had indeed intervened. The New York Fed took the unusual step of selling euros and buying yen on the Treasury’s behalf, with Goldman Sachs and Morgan Stanley handling the transactions. On July 30, the day before the intervention, the New York Fed also conducted a so-called rate check on behalf of the Treasury, asking banks about the yen’s exchange rate against the dollar. Such inquiries are generally seen as preparatory steps before actual purchases.

The yen had fallen to its weakest level against the dollar in 40 years on July 23. The Financial Times noted that this was the first time since 1998 that the United States and Japan had coordinated to directly purchase yen to support its value. At that time, the Treasury bought yen to support Japan’s economy after the currency fell to an eight-year low. Separately, the United States intervened after the 2011 Great East Japan Earthquake and tsunami, in coordination with the Group of Seven, to curb excessive yen appreciation—the opposite direction from the present purchases aimed at arresting yen weakness.

Both countries have left the door open to further coordination. Bessent said, “The U.S. Treasury is consulting closely with Japan’s Ministry of Finance and the Bank of Japan, and we will not hesitate to conduct further joint intervention if necessary,” adding that the Foreign and International Monetary Authorities repo facility was “an important backstop” and that he hoped its use would expand in the coming months. Katayama likewise described the action as a response to “excessive and disorderly movements in the yen,” stressing that Japan would remain in close communication with the United States and would not hesitate to undertake additional joint intervention. Japan also said it plans to secure necessary dollar liquidity through the Federal Reserve’s FIMA repo facility without selling its U.S. Treasury holdings.

U.S. Joins Yen Defense Amid Pressure Over Trade Deficit With Japan

U.S. participation in Japan’s currency defense reflects Washington’s own trade and financial-market interests. In its exchange-rate report released last month, the Treasury Department assessed that the yen’s dollar value and real effective exchange rate had each fallen 51% between the end of 2011 and the end of April this year, characterizing the currency’s current level as “significantly undervalued.” The concern is that exchange-rate-driven gains in Japanese products’ price competitiveness could undermine the effectiveness of tariff barriers erected by the Trump administration.

Japan recorded a $55 billion surplus in goods and services trade with the United States last year. Automobiles and capital goods accounted for 75% of U.S. imports from Japan. A weaker yen gives Japanese companies greater room to lower dollar-denominated export prices or absorb tariff costs. For U.S. companies, that translates into weaker price competitiveness, while for the Donald Trump administration it erodes the manufacturing-protection effects of tariffs.

Instability in Japan’s government bond market is also cited as a factor behind the U.S. decision. To finance yen purchases, Japan would need to liquidate overseas assets held in its foreign-exchange reserves. As one of the world’s largest holders of U.S. Treasuries, Japan could push up long-term U.S. interest rates if large-scale yen defense led to Treasury sales. As the prospect emerged that simultaneous weakness in Japanese government bonds and the yen could spill over into the U.S. Treasury market, Washington found it increasingly difficult to stand aside.

The New York Fed’s decision to buy yen by selling euros, rather than directly selling dollars, also reflects these concerns. Direct dollar sales could generate additional volatility in U.S. inflation and Treasury yields, while Japanese sales of U.S. Treasuries would intensify upward pressure on long-term rates. Using euros enables support for the yen while reducing the impact on U.S. financial markets. The structure effectively combines support for an ally with protection of America’s own markets within a single transaction.

Takaichi’s Tax-Cut Push Deepens Fiscal Concerns

Still, the measures may ease Japan’s currency strains, but they do not resolve the domestic policy imbalances driving yen weakness. The biggest factor undermining confidence in the yen is the Takaichi government’s expansionary fiscal stance. Prime Minister Takaichi, who pledged tax cuts as a remedy for elevated inflation, recently formalized a plan to lower the food consumption tax rate from 8% to 1% beginning next April before restoring it to its previous level. The measure would remain in force for two years, with the rate scheduled to return to 8% in April 2029. Estimates by research institutions and foreign media put the annual revenue loss at $39.8 billion–$45.2 billion.

Takaichi maintains that the tax cuts can be financed through higher revenues generated by inflation and nominal growth rather than deficit-financed bonds. However, Japan’s fiscal structure leaves little room to rely on optimistic revenue projections. The country already carries one of the highest public-debt burdens among advanced economies. Under the Finance Ministry’s fiscal 2026 budget proposal, the general-account budget totals about $1.1 trillion, with bond issuance of roughly $267 billion accounting for 24.2% of total revenue. Debt-service spending, including principal repayments and interest, reaches approximately $283 billion, or 25.6% of total expenditure, while interest payments alone amount to about $118 billion.

The government bond market has already priced in Japan’s fiscal burden. Japan’s 10-year government bond yield rose to 2.9% on July 9, its highest level in three decades, while the 30-year yield exceeded 4%. The International Monetary Fund projects that higher refinancing rates will lift Japan’s interest spending from 1.5% of gross domestic product in 2025 to roughly twice that level by 2031, exceeding 4% by 2036. Prioritizing tax cuts with revenues secured through nominal growth would weaken the fiscal buffer available to absorb rising interest costs. Markets have not interpreted higher government bond yields as a signal supporting the currency; instead, they have treated them as additional compensation for fiscal risk.

Yen weakness raises import prices and household living costs, undermining the Japanese economy’s underlying resilience. Unless wage growth keeps pace with inflation, households’ real purchasing power will inevitably continue to decline. In an economy heavily dependent on imported energy and raw materials, a weaker yen drives import-price inflation and erodes the profitability of domestic businesses. Rising living costs and declining real wages were among the key factors that undermined the approval ratings of governments preceding Takaichi’s administration. Her food consumption-tax cuts may provide temporary relief, but they are insufficient as a fundamental response to yen weakness and rising import prices.

Structural Weakness Difficult to Contain Through Yen Purchases Alone

The most immediate tool available to defend the yen is government intervention in the foreign-exchange market. Japan has sufficient capacity to intervene, backed by $1.09 trillion in foreign-exchange reserves. According to Bloomberg, Japan has intervened in the market four times since 2024 when the dollar-yen rate approached ¥160, purchasing roughly $100 billion in yen in total. Yet recent interventions have failed to reverse the yen’s weakening trend for an extended period.

Katayama has recently urged major Japanese pension funds, including the Government Pension Investment Fund, to increase investment in domestic Japanese assets. Authorities are also considering including government bonds among tax-exempt investment vehicles to encourage domestic investment by individuals. Takaichi has likewise emphasized the importance of households and the GPIF increasing their investment in Japanese financial assets.

However, some market participants argue that because the forces driving yen weakness—including high U.S. interest rates and rising oil prices—originate outside Japan, Tokyo would be better served by waiting for U.S. Treasury yields to decline rather than rushing into foreign-exchange intervention. Hideki Shibata, a strategist at Tokai Tokyo Securities, said, “If ¥162 per dollar is decisively breached, stop-loss orders could compound selling pressure on the yen,” adding that “the next line of defense could be ¥165.”

Wall Street forecasts also suggest that the yen could weaken as far as ¥200 per dollar. Vanguard Group warned that the dollar-yen rate could reach ¥200 if changes in Bank of Japan policy fail to raise Japanese government bond yields sufficiently. Sumitomo Mitsui DS Asset Management similarly said that even if market intervention temporarily strengthens the yen to around ¥150 per dollar, it could weaken to ¥200 over the longer term.