Japan's yen has depreciated, moving back towards 160 against the US dollar, despite an extraordinary US-Japanese intervention last month. Traders are reportedly betting that the yen will continue its role as a cheap funding pipeline for global finance.
Earlier this month, the Trump administration intervened to assist Tokyo in stabilising its currency. Donald Trump stated, “Japan’s been very good to us, with the exception, of course, of Pearl Harbor.” More help is reportedly expected.
US Treasury Secretary Scott Bessent's actions are described as an attempt to preserve a cash flow that benefits the US. Japan's ultra-cheap money has become a global funding utility, with bankers borrowing yen, converting them to dollars, and investing in higher-returning US assets, particularly tech shares. Mr Bessent sold at least $10bn in euros and purchased yen to halt its slide to a 40-year low.
Traders are currently testing US resolve. Rising oil prices, attributed to US-Iran tensions, are contributing to inflation in Japan and weakening the yen. If the yen were to slide to 164 to the dollar, Tokyo might respond with aggressive rate rises, which could trigger a chaotic market unwind.
Mr Bessent has allowed Japan to borrow dollars against its treasuries and use these dollars to buy yen, utilising a Federal Reserve lending facility. He is reportedly seeking a substantial increase to the facility's current $60bn daily limit.