Japan’s Ministry of Finance is estimated to have spent a historic ¥15.4tn ($97.4bn) between late July and late August to stabilise the yen. Led by US Treasury Secretary Scott Bessent, the Federal Reserve Bank of New York actively supported the move by selling euros to buy yen, injecting an estimated $5bn to $10bn into the operation. On July 31, the US Treasury Department joined forces with Japan’s Ministry of Finance for the first time since 1998. They aggressively bought yen to shock the market after the currency collapsed toward ¥164 against the dollar.
The yen fell to a 40-year historic low against the US dollar in mid-2026, plunging past the ¥162-¥164 range. This marked its weakest valuation since December 1986. The rare Japan-US joint intervention initially forced the yen back down to roughly 155 per dollar.
US President Donald Trump raised concerns about yen weakness at a summit with Japanese Prime Minister Sanae Takaichi, Japan’s Finance Minister Satsuki Katayama said on Friday, offering an unusually detailed account of the leaders’ talks on currencies. Katayama’s frank account of leaders’ talks, which governments typically keep confidential, points to shared concern in Tokyo and Washington over the yen’s continued slide despite their joint intervention in July.
The dollar has been rallying against the yen and other major currencies, driven by strong US economic data, a hawkish Federal Reserve and surging US bond yields. The weak yen is driving up energy import costs that are already elevated due to the US-Israeli war on Iran, fuelling concerns about an inflation overshoot. It’s a headache for Japanese policymakers and for the US, which is worried that a selloff in Japanese bonds could spill over into the Treasury market.
The benchmark 10-year Japanese government bond yield jumped to a 30-year high of 3.115% on Friday following a steep selloff in the US market. The yen has given up most of its sharp gains from early September and traded near 159 per dollar on Friday, not far from the 157 level, which is the median six-month projection of analysts polled by Reuters earlier this month.
Another challenge for the yen, analysts say, is that major central banks have almost all begun raising rates to tackle inflationary pressure from the Middle East war, suggesting interest-rate differentials with Japan are unlikely to narrow soon. Generally, a weaker yen helps large Japanese companies with global operations because it increases the value of repatriated overseas profits.
On the downside, a soft yen makes imports of energy and food more expensive, hitting consumers. The yen has long been the currency of choice for investors undertaking carry trades, which involve borrowing in a low-yielding currency like the yen to invest in higher yielding counterparts like the US, or Canadian dollars.
The yen was steady at 157.3 per dollar on Tuesday, having given back Monday’s gains after Japan’s top currency diplomat Atsushi Mimura said markets should heed the "very clear” warning that Tokyo and Washington delivered last week on the yen. Historically, the US rarely participates in direct currency intervention, making the recent alliance highly symbolic.
As the largest foreign holder of US debt, a severe yen crisis could force Japan to liquidate massive amounts of its $1tn-plus US Treasury securities, risking a spike in US yields and bond market instability. A severely undervalued yen also gives Japanese industrial exporters an aggressive trade advantage, blunting the impact of domestic US manufacturing goals and tariff policies.