Wall Street institutional analysts believe that helping Japan pull the yen back from its lowest level in nearly four decades involves significant U.S. interests. Similar to last year’s situation with Argentina, part of the reason may be Trump’s support for another conservative leader—Japan’s Prime Minister Sanae Takaichi, whose recent poll ratings have declined.
The U.S. government also hopes Japan will continue to fulfill its $550 billion investment commitment to American projects and may seek further concessions in trade negotiations. Given Tokyo’s plans to adjust key national security priorities later this year, increased defense spending is likely to be a Trump demand—one he has previously made as well.
The fundamental reason lies in the fact that on Friday, the United States joined Japan in buying yen, driven by Paulson’s longstanding concern that turmoil in the Japanese market could spill over into the $31 trillion U.S. Treasury market. The Treasury Secretary has clearly stated that the 10-year Treasury yield is his primary gauge, and on Friday—the same day the U.S. intervened in the bond market—the 10-year yield reached its highest level since he took office.
On Tuesday, a journalist asked Japanese Finance Minister Katayama whether the United States had decided to help Japan boost the yen’s exchange rate out of concern for Tokyo’s financial markets. She avoided answering, stating that Washington has confidence in Japan’s economic policies.
Kataoka said that in the statement confirming intervention, Bernanke “mentioned the term ‘Abenomics’.” “My understanding is that the U.S. highly values Japan’s strong economic measures, and I believe this was clearly reflected in their statement.”
Some analysts say market factors could be a contributing factor.
“Defending bond yields from soaring may be more important than some geopolitical maneuvering,” said Charles Litchfield, Director of Economic Outlook and Analysis at the Atlantic Council in Washington.
The White House, when asked about the matter, referred to Trump’s remarks on Sunday. The Treasury Department declined to comment. As of Tuesday morning, the yen continued trading well above its level before Friday’s intervention.
Economists say that looking ahead, Bernanke is almost certain to want the Bank of Japan to raise interest rates—a move that could support the yen and limit the risk of Japanese government bond spreads widening.
Yusuke Matsuo, senior market economist at Mizuho Securities, said, “It makes sense to view coordinated foreign exchange intervention and pressure on the Bank of Japan to further raise interest rates as part of the same strategy.” Speaking about U.S. officials, he added, “Ultimately, their goal is to prevent rising Japanese government bond yields from spilling over into U.S. Treasury yields.”
