Why a Weak Yen Is America’s Problem

Summary

Big Take Podcast: "Why a Weak Yen Is America’s Problem"
Bloomberg & iHeartPodcasts | August 4, 2026

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Episode Overview

This episode examines the unprecedented joint intervention by the United States and Japan to support the Japanese yen, its causes, and the far-reaching implications for global markets and American consumers. Host Wan Ha and Bloomberg journalist Ruth Carson dive into the economic context, explain why the yen is so weak, and dissect how this currency crisis reverberates beyond Japan’s borders, especially highlighting America’s stake in the matter.

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Key Discussion Points & Insights

1. The Yen Crisis and Unprecedented US-Japan Intervention

• Historic Move: The US and Japan have conducted a rare joint market intervention to prop up the yen, which had fallen to a 40-year low against the dollar.
  • Quote: “We haven't seen something like this in what, 15 years?” — Wan Ha (03:03)
• Political Signals: President Donald Trump publicly defined the intervention as a signal of friendship between Washington and Tokyo (02:12).
• Recent Clues: The intervention was foreshadowed by leaked notepad remarks from US Treasury Secretary Scott Bessant at a cabinet meeting, reading “to do: buy Japanese yen 5 to 10” (03:03–03:11).

2. Why the Yen Is So Weak

Japan's Economic History and Structural Issues

• Flashback to the 1980s:
  • Japan experienced a massive boom in the 1980s driven by easy money and aggressive bank lending.
  • Subsequent sharp interest rate hikes in 1989 crashed the market, leading to decades of stagnation (04:30–05:30).
• Persistent Low Interest Rates:
  • Bank of Japan (BOJ) eventually cut rates to zero and only recently began hiking; current rates are about 1%—much lower than the US or emerging markets (05:58–06:49).

The Carry Trade Effect

• Low rates fuel “carry trade”:
  • Investors borrow cheap yen and invest in higher-yielding overseas assets, leading to persistent selling pressure on the yen.
  • “By some estimates it's over US$4 trillion bigger than the size of India's economy that is invested offshore.” — Ruth Carson (07:34)

Other Factors

• National Debt: Japan’s government debt is over 200% of GDP, the highest among advanced economies (08:14).
• Global Shocks: Energy imports have gotten pricier due to the Middle East conflict, aggravating inflation.
• Domestic Investment Outflows: Local pension funds and insurers, facing low returns and inflation risks, continue sending funds abroad, further weakening the yen.

3. Winners and Losers in Japan

• Pros:
  • Boosts tourism—makes Japan more attractive as a destination and supports exports (09:42).
• Cons:
  • Japanese consumers face soaring import and household costs; small businesses are squeezed.
  • Political fallout: The weak yen has contributed to the downfall of two recent prime ministers.
  • “Voters will vote and if they are feeling the pain...absolutely. We have seen the downfall of Prime Minister’s leaders who have failed to address voters pain and concerns.” — Ruth Carson (10:29)

4. Why a Weak Yen Matters Globally and to the US

• Scale of Recent Interventions:
  • Japan spent ~$74 billion in April and $80+ billion in recent days to stabilize the yen; US participation is likely the largest ever (14:30).
• Global Market Impact:
  • The yen is the world’s third most-traded currency; disruptions have worldwide ripple effects.
  • “If something goes awry with the yen...its impact isn’t felt just in Tokyo...It’s a problem that can fester as far away as Jakarta through to, you know, Sao Paulo.” — Ruth Carson (15:12)
• US Treasury Market Link:
  • Japan is the largest foreign holder of US Treasuries; selling Treasuries to fund yen interventions can drive up US yields, raising borrowing costs for Americans.
  • “If they start selling to fund efforts to prop up the yen, it pushes down the price of US bonds, it pushes yields higher and that means higher borrowing costs for the US.” — Ruth Carson (15:40)
• Carry Trade Risks:
  • Sudden surges in the yen can upend global hedge fund and investment strategies—as seen in previous episodes (August 2024 example at 16:00).

5. How Currency Intervention Works

• Mechanism:
  • The Ministry of Finance directs the BOJ to sell dollars (often by liquidating US assets/treasuries from reserves) and buy yen to support its price.
  • Japan has over $1 trillion in FX reserves, giving it substantial “firepower” for interventions (17:10–17:50).
• Effectiveness:
  • Interventions have short-term impacts; for example, the April 30th operation brought the dollar/yen rate down from 160 to 155.
  • However, pressure resumes if fundamentals (interest rate gap) don’t change; more interventions quickly follow (18:13–18:57).

6. The Uniqueness of the Current US-Japan Action

• Historic Coordination:

  • First such strong US involvement in decades, highlighting that the weak yen problem now risks destabilizing the global system (19:03).
  • “The fact that you've got the US essentially coming in a way to Japan's rescue shows that this is not just a Japan problem any longer.” — Ruth Carson (19:03)

• Future Outlook:

  • Ongoing signals from both governments suggest coordinated action may continue.
  • “This may not be a one off. It is likely not going to be a one off when that rate differential story is still, still very much in play.” — Ruth Carson (19:43)

7. What Would a Lasting Solution Look Like?

• Raising Rates:
  • Only concerted, substantial rate hikes by the BOJ, if they can be done without destabilizing Japan’s fragile economy, can alter incentives for global investors.
  • “Raise interest rates and raise it fast and high without destabilizing one of the world's biggest and most important economies.” — Ruth Carson (21:06)
  • Investors cite the rate gap as the key reason for constantly selling the yen; as long as the gap persists, pressure remains.

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Notable Quotes & Timestamps

• “We haven't seen something like this in what, 15 years?” — Wan Ha (03:03)
• “To do. And on it it showed by Japanese yen 5 to 10.” — Ruth Carson, citing Treasury notepad (03:11)
• “The fact that you've got the US essentially coming in a way to Japan's rescue shows that this is not just a Japan problem any longer.” — Ruth Carson (03:29, 19:03)
• “By some estimates it's over US$4 trillion bigger than the size of India's economy that is invested offshore.” — Ruth Carson (07:34)
• "Import costs and household expenses are soaring. Small businesses are getting squeezed as well." — Ruth Carson (10:00)
• “If they start selling to fund efforts to prop up the yen, it pushes down the price of US bonds, it pushes yields higher and that means higher borrowing costs for the US.” — Ruth Carson (15:40)
• “Raise interest rates and raise it fast and high without destabilizing one of the world's biggest and most important economies.” — Ruth Carson (21:06)

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Timestamps for Important Segments

• 03:03 – Public clues and political signals on intervention
• 04:30 – Japan’s 1980s boom and bust
• 05:58 – Japan’s lingering low interest rates and global carry trade
• 07:34 – Magnitude of offshore yen-funded investments
• 08:14 – Other macro pressures: debt, energy, and domestic outflows
• 10:00 – Consumer pain in Japan and political consequences
• 14:30 – Scale of government intervention
• 15:12 – Why a weak yen is a global and American problem
• 17:10 – How FX intervention works
• 19:03 – The US’s motivation to intervene; global signal
• 21:06 – What would count as a real, lasting solution?

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Conclusion

This episode offers a compelling look at how the Japanese yen’s fall became a challenge not just for Tokyo but for Washington and the broader global economy. Through clear explanations and real-world analogies, Wan Ha and Ruth Carson reveal why America and the world can’t ignore the crisis — and why monetary policy in Japan now matters to your mortgage in New York. The outlook remains uncertain, dependent on fraught policy choices and global market reactions, with the fate of the yen now a truly international affair.

Transcript

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[Wan Ha]

Investors are watching the currency markets with bated breath this week as a historic high stakes intervention by the US And Japanese governments sends shockwaves through the global financial system. At the center of the storm the Japanese yen. A quick look at the yen as Japan and the U.S. warned of further

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coordinated action intervention, the U.S. u.S. And

[Ruth Carson]

Japan warn they won't hesitate to defend the currency further.

[Wan Ha]

We haven't seen something like this in what, 15 years? President Donald Trump said the joint intervention was a signal of Washington's friendship with Tokyo.

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They have a weakening yen and they

[Ruth Carson]

wanted a little bit of help and we're always there for Japan.

[Wan Ha]

Japan the Japanese yen had been slumping for months, hitting a 40 year low against the US dollar. Treasury Secretary Scott Bessant raised concerns about the yen volatility earlier this year, and currency traders have been on high alert for the US to step in to support the yen. But the most telling clue that the US Might make a move came at a Cabinet meeting last Friday at Camp David. It's an honor to be here in this historic place. During that meeting, a photographer looking over Besant's shoulder spotted something that caught his eye.

[Ruth Carson]

A photographer from Reuters captured an image of Scott Bessant's notepad.

[Wan Ha]

And scribbled across the page were a few words that would soon grab the attention of investors around the world.

[Ruth Carson]

The notepad clearly displayed underlined words to do. And on it it showed by Japanese yen 5 to 10.

[Wan Ha]

Bill that's Bloomberg's Ruth Carson. She covers Asia's foreign exchange markets from Singapore. The US Stepped in to buy the Japanese yen on Friday. Ruth says it was a rare move. The US has intervened in the market for the Japanese yen only twice in the last 30 years.

[Ruth Carson]

The fact that you've got the US essentially coming in a way to Japan's rescue shows that this is not just a Japan problem any longer.

[Wan Ha]

This is the big take Asia From Bloomberg News, I'm Wan Ha. Every week we take you inside some of the world's biggest and most powerful economies in the markets, tycoons and businesses that drive this ever shifting region. Today in the show, Japan and the US Play tag team to rescue the yen. What's at risk for American consumers if the plan doesn't work? And why a weak yen is a problem for the global economy, not just for Japan. Ruth, to understand what's happening this week, we actually need to flash back to Japan in the 1980s. Can you paint a picture of Japan's economy then?

[Ruth Carson]

In a word, booming. The Nikkei gained more than 450% over a decade. It was explosive. Interest rates were still low. Banks were gangbusters in terms of lending aggressively. There was optimism about the Japanese economy. So that fueled a frenzy of buying stocks, property and then suddenly it came crashing down. In 1989, the bank of Japan raised interest rates in a big way. Over the coming months, rates went from 2.5% to 6%. It was a mental crazy increase. And suddenly almost overnight, borrowing became so much more expensive. Credit growth and the banks that were happily landing just no stived.

[Wan Ha]

How did that long period of economic stagnation affect Japan's interest rates?

[Ruth Carson]

So it went on for decades. One piece of action over the period of months, a year ended up being decades of lost growth. The BOJ eventually cut rates to zero, tried to revive growth and Japan became the pioneer in zero interest rates to try and bolster the economy. But it wasn't until recently that we've seen Japan begin to normalize.

[Wan Ha]

After decades of deflation, the bank of Japan has come under Pressure to cool inflation. In March 2024, the central bank exited its zero rates policy, raising interest rates for the first time in 17 years. Including that move, the BOJs raised interest rates five times in total.

[Ruth Carson]

Where are Japan interest rates today? About 1%. Okay. US versus Japan. The interest rate gap at the moment is 275 basis points against Australia is 335 basis points with emerging markets. With Indonesia for example, there's a 475 basis points difference. With Brazil, it is over 1300.

[Wan Ha]

That's crazy. So Japan's interest rates are very, very low compared to the rest of the world. Correct.

[Ruth Carson]

As much as a journalist, I write about Japan raising interest rates. As a trader, you will look at it and go, you know what that carry trade to buy something like U.S. treasuries or that wind farm in Europe or you know, the cost be Korean stocks. I'm better off putting my money where I'm going to get growth. And if I'm going to get a cheap funding currency to fuel that batch, absolutely, why not? And that currency is the yen.

[Wan Ha]

And how does that borrowing in yen and investing overseas put pressure on the yen?

[Ruth Carson]

So to answer that question, you need to understand the size of this carry trademark investment. By some estimates it's over US$4 trillion bigger than the size of India's economy that is invested offshore. So investors are selling the yen, trillions of dollars of it, in order to fund investments offshore that are getting them more bang for their buck. What does that mean for the yen? It means continued pressure.

[Wan Ha]

So these low interest rates are really locking in that pressure for the Japanese yen. I wonder if you can tick through some of the other factors weighing on the Y.

[Ruth Carson]

Okay, so if we take a macroeconomic look at Japan, it's not just a carry trade which is obviously fueled by interest rate differentials. Japan's national debt is over 200% of its GDP, by far the highest among developed economies. On top of that, you've got the ongoing Iran war. Remember, Japan is a huge importer of energy from the Middle East. And if you're import bill is higher because of the war, that only fuels inflation problems in Japan. And if the BOJ is seen behind a curve to raise interest rates to combat said inflation, the yen is another release or escape fall for investor angst. And one critical component to this story of a weak yen is also the impetus of local investors to invest offshore. You've got pension titans, life insurer titans that are some of the biggest investors in the world and they have liabilities to match, they have to pay people their pensions. If inflation is eating into your returns, do you have an incentive to pull that massive amount of money offshore back home? Or do you hedge your bets and continue investing offshore and take only some of that money back onshore? All this is it's not good for the yen.

[Wan Ha]

Now there are pros and cons of a weak yen for Japan, right?

[Ruth Carson]

Absolutely. It becomes more desirable, isn't it, to visit a destination like Tokyo or Kyoto. But there's equally lots of cons as well.

[Wan Ha]

Well, yeah. And especially if you are a Japanese consumer, if you're living here in the country, you're feeling the pain of that weak yen, right?

[Ruth Carson]

Absolutely. Import costs and household expenses are soaring. Small businesses are getting squeezed as well. And that's why we're seeing some of the policies that have come through right from Prime Minister Sanae Takaichi with tax initiatives to help with that cost of living.

[Wan Ha]

So that high cost of living has become a huge issue here in Japan. That's also contributed to really the downfall of the two previous prime ministers.

[Ruth Carson]

Absolutely right. Voters will vote and if they are feeling the pain that's stemming from a weak yen. Absolutely. We have seen the downfall of Prime Minister's leaders who have failed to address voters pain and concerns.

[Wan Ha]

This isn't the first time that the Japanese yen has needed support from its government. After the break, we'll find out why the US feels the need to get involved this time around.

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[Wan Ha]

The Japanese yen has needed a lot of support recently. Bloomberg estimates that the Japanese government has been spending significant, significant amounts to prop up the currency. Almost $74 billion in April and more than 80 billion over two days at the end of last week. It's still unclear how much Washington has actually spent to help lift the yen from its four decade low. The joint intervention was likely larger than those undertaken in 1998 and 2011, when U.S. contributions didn't surpass a billion dollars. Bloomberg's Ruth Carson says the huge U.S. purchases show that a weak yen isn't just a problem for Japan.

[Ruth Carson]

So the currency market trades at $9.5 trillion a day. A day. So we're talking the biggest asset class in the world. The yen is the third most traded currency every single day in the world. That shows you the amount of capital that's sloshing about when it comes to yen Bets. So if something goes awry with the yen, for example, in this case it's ultra, ultra weak. Its impact isn't felt just in Tokyo or onshore. It's a problem that can fester as far away as Jakarta through to, you know, Sao Paulo. So a couple of key points to note. Japan, for example, is the largest foreign investor of U.S. treasuries in the world. If they start selling to fund efforts to prop up the yen, it pushes down the price of US bonds, it pushes yields higher and that means higher borrowing costs for the US Suddenly it's no longer just that homeowner in Tokyo that's feeling the pinch. If you have higher treasury yields in the US say in the 30 year, that's impacting that New York mortgage holder. Right, right. And on top of that, we talked about the yen carry trade and it's trillions of dollars around the world and it's cemented. Right. So we saw that, we saw that happen in August 2024 when the yen suddenly surged and wiped out profits of hedge funds, stock investors, credit investors were trembling. And it's, it's impactful to the point where it can destabilize global markets.

[Wan Ha]

What does it mean for government to intervene in the currency markets? How does that actually work in practice?

[Ruth Carson]

In this case, the chain works like this. Japan sells dollars which could be backed by assets like treasuries, U.S. treasury bills to bolster the yen. So Japan's Finance ministry decides to intervene. We're acting now, the boj, the bank of Japan, will act as its agent. Japan sells US dollars from its reserves. It uses the dollar to then buy the yen. To put this into context, Japan has more than $1 trillion in FX reserves. That's a ton of firepower. Goldman Sachs in May after April's intervention then said that Japan could intervene about 30 more times at its April intervention size.

[Wan Ha]

And Ruth, how effective were these interventions? What happened to the yen after Japan's government intervened in April?

[Ruth Carson]

Okay, so the yen weakened past 160 per dollar. Japan then conducted a yen buying operation on April 30 according to people familiar with the matter. And dollar yen plunged. It went from around 160 to 155. Huge, huge moves and wiped off a lot of that bearish yen sentiment. Did it work? In short, no, because they had to intervene again recently. Dolly JPY continued to creep higher and it comes down to that rate differential story again. So investors came back and they just kept coming back to sell the yen.

[Wan Ha]

What's your take, Ruth, on What's different about this latest intervention?

[Ruth Carson]

So the US Involvement is historic. It's decades since we had seen anything coordinated like this. But the fact that you've got the US Essentially coming in a way to Japan's rescue shows that this is not just a Japan problem any longer. That sends a strong signal whether or not markets heed it is something else altogether. But the fact that they have come out to work together is highly, highly significant.

[Wan Ha]

What's been the message on continued interventions? Is this the last of it?

[Ruth Carson]

So if we listen to Donald Trump, he's obviously underlined that friendship with Japan, which kind of, in a way sort of lends heft to further intervention efforts. At the same time, you've got the finance minister of Japan coming out to say that there will be, there could be further coordinated intervention. So that definitely puts investors on high alert. This may not be a one off. It is likely not going to be a one off when that rate differential story is still, still very much in play.

[Wan Ha]

And Ruth, what does a successful intervention look like for the markets?

[Ruth Carson]

It's hard to answer that again, because it hasn't worked. So successful intervention, one would say, is where the yen does not only strengthen but keep its strength. Where you will get investors in Japan and mega funds coming out to say, we are buying Japanese assets en masse once more, we are bullish on the yen, and that sends strong signals to the rest of the world that, hey, you know what, it worked. We are now believing the story of a stronger yen, but I don't see firm evidence of that just yet.

[Wan Ha]

And what do you think needs to happen for Japan to wean itself off of the need for these interventions, raise

[Ruth Carson]

interest rates and raise it fast and high without destabilizing one of the world's biggest and most important economies. When I speak to investors, when I speak to traders, the number one reason they cite as to why they're selling the yen is because of Japan's wide interest rate gaps with the US and the rest of the world. Now, remember, we can debate about bank of Japan policy and how careful they are and they have to be without destabilizing their own economy and balancing a weak yen. So they have their reasons to act the way they do. But while the Japan interest rate gap with the US Is so large, investors will still return to it and go, that's a juicy trade right there. To keep selling the yen.

[Wan Ha]

This is the Big take Asia from Bloomberg News. I'm wan ha to get more from the big take and unlimited access to all of bloomberg.com, subscribe [e-mail] podcastoffer if you like this episode, make sure to follow and review the Big Take Asia. Wherever you listen to podcasts, it really helps people find the show. Thanks for listening. See you next time.

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