Why the weaker yen impacts the US
The article discusses Japan and the United States' efforts to intervene in the foreign exchange market to support the Japanese yen after its significant decline and the rising costs of imports, especially oil and gas. In July, Japan injected approximately $97 billion to bolster the currency, leading to a rapid improvement in the yen's exchange rate—from near 164 yen per dollar down to around 155 yen—aimed at controlling inflation and increasing import costs. The primary issue relates to the substantial gap between interest rates in Japan (1%) and the United States (3.5% to 3.75%), which prompts investors to sell yen and borrow dollars to invest in higher-yield assets. This exerts downward pressure on the Japanese currency and threatens economic stability. The joint intervention is intended to buy time but does not address the interest rate gap, which remains the main driver of the yen's weakness. It also aims to maintain the stability of the global debt system in which Japan and the U.S. are both involved, especially given Japan’s large holdings of U.S. Treasury bonds. **Conclusion:** The stability of the yen continues to depend on Japan's ability to balance currency support with maintaining economic growth, while Washington’s intervention seeks to reduce currency volatility and its impact on global markets.
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