Japan\u2019s government is facing a choice between unappealing options as it attempts to manage the strength of the yen relative to the dollar.<\/p>\n
In a move co-ordinated with American counterparts, Japanese policymakers have bought up the yen to move it from around 164 yen per dollar to 156.5.<\/p>\n
Further action is considered likely, due to the historic lows that have been evident in recent months.<\/p>\n
The big concern from the Japanese perspective is inflation, with the weakness of the currency forcing up the cost of everything the country imports. However, intervening further carries its own risks.<\/p>\n
While America wants one of its key trading partners to remain on sound economic footing for multiple reasons, its willingness to intervene so overtly in this instance has a more direct reason driving it.<\/p>\n
The fear on American shores is that Japan may be forced to dump some of its estimated $1.1trillion of US treasuries holdings on the market to support the yen and buy back its own bonds.<\/p>\n
That would have a serious knock-on impact for US costs of public borrowing, US Federal Reserve policy and the dollar.<\/p>\n
AJ Bell investment director, Russ Mould, said: \u201cMonty Python\u2019s \u2018Money Song\u2019 feels a bit dated now, given its references to what it terms the lure of the lira and the romance of the ruble, let alone the glitter and glory of the guinea, but it gets one thing right in that it does not mention the Japanese yen at all.<\/p>\n
\u201cSuch is the currency\u2019s decline this decade that both Washington and Tokyo are stepping in to support it, although America\u2019s involvement is unlikely to be for altruistic reasons.<\/p>\n
\u201cTreasury Secretary Scott Bessent will be more worried about the prospect of Japan selling some of its huge US government bond holdings than the debt and inflation woes of Prime Minister Sanae Takaichi.<\/p>\n
\u201cOne worry is that the Bank of Japan will have to revert to quantitative easing and start buying Japanese government bonds (JGBs) hand over fist in an effort to rein in Tokyo\u2019s borrowing costs, which are rising relentlessly in response to lofty supply and another ongoing concern of inflation,\u201d Mould continued.<\/p>\n
\u201cIn this respect, the Bank of Japan may be trapped between two unappealing policy options. But if Tokyo really was worried about defending the yen, then getting Ueda and the BoJ to act in a decisive manner would be the easiest way to do it.<\/p>\n
\u201cInstead, the USA is stepping in to help, but its motives are not wholly charitable.\u201d<\/p>\n