Yen sinks as US-Japan intervention unravels
Yen sinks as US-Japan intervention unravels
Chris PriceMon, August 10, 2026 at 3:45 PM UTC
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The yen has fallen despite the Bank of Japan raising interest rates in recent years - structuresxx/iStock
The Japanese yen has suffered its sharpest sell-off since February as an American attempt to prop up the ailing currency unravels.
The yen fell by as much as 1pc to 159 to the dollar on Monday, wiping out around half of its gains since last week, when the US Treasury bought the currency for the first time in 15 years.
Japan’s currency fell to a 40-year low in July amid a wide discrepancy in interest rates between the two countries, with rates far higher in the US.
The decline will ring alarm bells in the US that its Asian ally could sell off its substantial holdings of American debt to support the yen.
Such a move would push up the cost of US government borrowing, which is already under strain from the US’s $40tn (£30tn) debt burden.
Seth Carpenter, the chief global economist at Morgan Stanley, said: “The US-Japan intervention does not change our outlook on the fundamental drivers of the yen.”
The yen has fallen despite the Bank of Japan raising interest rates in recent years.
Rates have risen from negative 0.1pc in 2024 to 1pc today as the world’s fourth-largest economy reflates after decades of malaise since the early 1990s.
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However, rates remain well below levels in the US, where the Federal Reserve’s funds rate sits in a range of 3.5pc to 3.75pc.
The Japanese government confirmed last week that it had taken action with the US to boost the yen and counteract “excessive volatility and disorderly movements in recent months”.
The intervention triggered a sharp spike in the value of the currency as traders betting on declines in the currency were forced to recalibrate their positions.
Speculators cut their bets on declines in the Japanese yen by the most in more than 12 years, according to data from the Commodity Futures Trading Commission released on Friday.
Claudio Irigoyen, a global economist at Bank of America, warned the intervention would raise pressure on the Bank of Japan to raise rates further.
He said: “Foreign currency intervention is generally ineffective unless imbalances are addressed.
“Coordinated intervention raises the need for credible policy follow-through in Japan to stabilise the yen.
“The Bank of Japan will likely be under high pressure if the Fed hikes in September, in our view.”
Source: “AOL Breaking”
