U.S. Treasury Secretary denies any intention to intervene in the faltering Japanese currency market

The Japanese yen dropped further in value against the dollar following U.S. Treasury Secretary Scott Bessent’s refusal to intervene in saving the faltering currency. The USD/JPY pair has fallen to historic lows recently due to policy decisions by the Japanese government and central bank. This news signifies a growing divergence between U.S. and Japanese monetary strategy.

United States Treasury Secretary Scott Bessent made an announcement on CNBC this week that rattled the Japanese currency market. Bessent made it clear that the United States would not be doing anything to save the falling Japanese yen and went on to talk about the strength of the U.S. dollar (USD).

Rumors were circulating last week that the United States would intervene to help prop up the Japanese yen, after news of a planned rate check between U.S. and Japanese monetary authorities. A rate check is considered a pretense to market intervention, and in light of this, traders began selling off on the U.S. dollar. Scott Bessent’s comments in his latest interview with CNBC have shut down the possibility that the U.S. will actually intervene in Japanese currency markets, and the dollar has since rebounded.

Bessent maintains that the U.S. has a “strong dollar policy,” which “means setting the right fundamentals” to allow money to flow into the currency. An intervention in a foreign currency would obviously be adverse to this strong dollar stance by the U.S. Treasury, thus deeming it unlikely that the Japanese will be receiving any assistance from them in the near future.

The Japanese yen has been experiencing a great deal of volatility in recent times due to structural issues with the current Japanese economy and monetary framework. For years, the Bank of Japan (BOJ) exercised a loose monetary policy with low interest rates to boost economic growth. However, as other major world economies like the United States moved in an opposite direction in terms of monetary policy, the Japanese yen became an increasingly unfavorable investment for foreign capital. Over time, this situation led to accelerated capital outflows from the Japanese yen market, thus contributing to its prolonged decline.

The current state of the Japanese yen market

In April of 2024, the Japanese yen fell to its weakest level against the U.S. dollar since the early 1990s and has been experiencing significant volatility in the years since. This initial collapse was triggered by an interest rate hike by the BOJ, which led to an outflow of foreign capital from the Japanese yen market. For many years, the BOJ held extremely low interest rates compared to other major economies, which attracted investment. Investors would borrow the yen at a low interest rate, convert it into another currency like USD, and invest in high-yielding assets in what is known as “the yen carry trade.” However, once the BOJ decided to raise interest rates, the carry trade no longer remained profitable, causing swaths of investors to pull out, sending the yen crashing in value.

The BOJ has been struggling to stabilize the country’s currency since the yen carry trade unwinding in 2024, but has largely been unsuccessful. According to Reuters, on January 13th, 2026, the yen collapsed to its weakest value against the dollar since the summer of 2024. This was largely driven by widespread concerns over the country’s Prime Minister Sanae Takaichi’s preference towards a loose monetary policy that would further drive-up Japan’s already large national deficit. Aljazeera reports that Japan’s debt-to-GDP ratio is over 230%, one of the highest of all developed nations.

Takaichi’s administration also announced the approval of a massive stimulus package for citizens, which sent yields on 40-year Japanese bonds to the highest levels on record. This caused large capital flight from the Japanese bond market, putting the nation’s economy in an even more precarious situation.

Japan’s 2026 economic future

Goldman Sachs published a report on the 2026 economic outlook for Japan at the beginning of January. The report expects moderate but steady growth of the Japanese economy at roughly 0.8% in the new year driven by domestic demand opposed to exports.  Inflation is expected to stay above or around 2% target. If the Takaichi Administration delays interest rate cuts, it is likely that the BOJ will intervene to a necessary capacity.

Japan’s debt-to-GDP ratio, although currently high, has slightly declined recently despite the massive stimulus package from the Takaichi Administration. However, if government spending increases further, the debt-to-GDP ratio will most likely return to trending up. Fiscal spending and the administration’s planned elimination of consumption taxes pose a risk that is currently undermining confidence in the Japanese economy. Aging demographics and labor shortages could also create additional issues for Japanese economic growth. Global trade dynamics and currency volatility will be two key factors to watch going forward.

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