Japan’s yen has slid back towards 160 to the dollar, despite last month’s extraordinary US-Japanese intervention. Traders are betting that its role as a cheap funding pipeline for global finance will continue. Earlier this month the Trump administration stepped in to help Tokyo stabilise its currency.
More help is likely to be on its way. But this is less a rescue of the yen than an attempt by Scott Bessent, the US treasury secretary, to preserve a cash spigot that benefits the US. Japan’s ultra-cheap money has become a global funding utility: bankers borrow yen, sell them for dollars and buy higher-returning US assets, notably tech shares.
Rising American stock markets support collateral and investment. Japan’s “carry trade” is one of the reasons Wall Street can lever hundreds of billions into AI. Research suggests AI sucks up more than 1% of US GDP.
Washington wants to keep this tap open, but not at the cost of a collapsing yen or US treasury sales. This column predicted this in April, warning that Tokyo’s monetary choices had bound US markets to the yen trade. What Mr Bessent did was to sell at least $10bn in euros and buy yen to arrest its slide to a 40-year low.
Not telling the Europeans said it all: allies matter to Washington only when they are useful. Traders are probing US resolve. Rising oil prices, driven by US-Iran tensions, stoke Japan’s inflation and weaken the yen.
Suppose it slides back to 164 yen to the dollar? Tokyo might respond with aggressive rate rises. This would be unlikely, as it would choke off the investment cycle that Japan is trying to create.
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