Why the U.S. intervention on the Japanese yen could ripple into Argentina

Just as it did with Javier Milei’s government last year, Washington carried out a coordinated action with Japan to prop up the value of the yen, which in recent days hit its lowest point in 40 years. The operation which involved a massive purchase of yen pushed up the value of the Japanese currency and put pressure on the Japanese stock market. On Monday, the Nikkei 225 fell 1.02%. “We will not hesitate to conduct further coordinated intervention,” Finance Minister Satsuki Katayama told reporters on Monday. The yen jumped more than 1%, to 155.20 per dollar after the announcement its highest level since early May, and far from the four-decade low of nearly 164 it reached last month. It currently trades at 156.66 per dollar. The joint action was the first since the coordinated operation of 2011, after Japan’s devastating earthquake. According to estimates by the bank ING, “the Japanese probably sold US$70 – US$80 billion over the last three days” to keep their currency from depreciating further. “Why now? Perhaps US Treasury Secretary Scott Bessent had felt that the weak yen was undermining JGBs, which, in turn, was weighing on Treasuries,” the Dutch bank’s experts said. A Reuters photo captured Bessent’s notepad during a cabinet meeting on July 31. It read: “To Do. Buy Japanese Yen (JPY) US$5-10 bil.” Even so, ING said the intervention “does not change the fundamentals of a Fed close to hiking and Tokyo running a loose set of monetary and fiscal policies, which are weighing on the yen.” The bank said it “struggle[s] to see” that bilateral action bringing the yen below 155 per dollar, though it explained that “it does serve as a containment exercise,” keeping investors from pushing the yen past 160 and “buying time for Tokyo to introduce more yen-positive policies.” The red thread linking the U.S. and Japanese economies Financial analyst Gastn Lentini explained that for years, to slow the yen’s loss of value, the Japanese government has sold U.S. Treasury bonds. Japan is, in fact, the largest holder of Treasuries in the world. “When it needs to buy yen, it sells those bonds, which drives the price down and pushes the yield up. In other words, when they want to defend the yen, they indirectly affect U.S. interest rates,” Lentini said. The analyst explained that those rates determine, for example, the cost of Americans’ mortgages. “If you’re 30 years into debt at 3%, but now you have to pay 7%, as an American citizen you’re not going to be happy and you’re probably going to be worried,” he said. He noted that the U.S. deficit tops 5.9%, on top of rising oil prices driven by the war and Japan selling Treasury bonds. “Bringing inflation down looks difficult,” Lentini said. He added that if the Fed raises rates to contain inflation, “it could simply speed up the process that makes all U.S. debt harder to service.” On top of that, if the Fed decides to raise rates, it will hit the global economy, generating a risk aversion among investors that would weigh on, for example, Argentina’s country risk at a time when the country is looking to return to the international debt market. Why it matters for global markets, Argentina included Because of its historically low rates, Japan has for decades been one of the most widely used sources of financing for global financial markets, giving rise to what’s known as the yen carry trade. For that reason, any decision by the Bank of Japan (BoJ) on interest rates, or by the Japanese government on its fiscal policies, is of central importance to the international economy. A more restrictive environment driven by a sharp BoJ rate hike, for instance, could limit global liquidity, hitting risk assets and emerging markets like Argentina’s first. On the other hand, an overly loose fiscal policy under Sanae Takaichi’s government could raise doubts about the sustainability of Japan’s sovereign debt. “The intervention could force a reduction in carry positions funded in yen and generate volatility in Asian stocks, credit and emerging-market currencies,” said Felipe Barragn, an analyst at the brokerage Pepperstone. He stressed, however, that the ability to produce a “lasting” appreciation of the yen will depend on it being accompanied by “an effective convergence of monetary policies.” “As long as U.S. rates stay well above Japanese ones, the fundamental incentives to rebuild those positions will persist,” he added. On Friday, the BoJ held its rate at 1%, as the market expected. Its statement warned that core inflation will probably accelerate “clearly above” 2% in the second half of fiscal 2026, citing rising crude prices, the yen’s depreciation and the pass-through to prices of wage increases.