Japan just opened its wallet wider than ever to stop the yen's free fall.
The country spent $96.4 billion - roughly the entire market value of Starbucks - in just four weeks to prop up its currency. That shatters the previous record set in May, when officials spent ¥11.73 trillion during a market holiday. These massive interventions highlight how Japan's traditionally export-driven economy now faces severe strain from excessive yen weakness, which makes energy and food imports prohibitively expensive for households.
This time, the yen had tumbled to nearly 164 against the dollar, its weakest level in four decades. That made imports painfully expensive for Japanese consumers and businesses. So Tokyo stepped in with a new tactic - acting before a central bank meeting rather than waiting until after.
For the first time since the Asian financial crisis in 1998, America teamed up with Japan to defend the yen.
Understanding what moved a market beats knowing that it moved. Get the free Market Briefs daily newsletter and follow the drivers.
While the exact U.S. contribution remains secret, Treasury Secretary Scott Bessent signaled readiness to buy up to $10 billion worth. That joint show of force helped the yen jump from 164 to 155.23 in just three days.
"It changes the game when the U.S. gets involved," said SMBC Nikko Securities analyst Rinto Maruyama. "Markets start thinking there's effectively no ceiling on how much firepower authorities can bring."
As of August 26, the yen hovered at 159.68 - still weak, but holding below the key 160 level that triggered past interventions.
That relative stability comes at a steep price. Japan has now spent ¥27 trillion this year just to keep the yen from collapsing further. And with U.S. interest rates still high, the fundamental pressure pushing the yen down remains. The widening rate gap between Japan's near-zero yields and higher American returns continues attracting carry trades that sell yen to buy dollar assets.
For your portfolio, this means watching two things: whether Japan can afford to keep spending at this pace, and when U.S. monetary policymakers might cut rates to ease the dollar's dominance. Until then, expect more turbulence in currency markets - and more creative moves from Tokyo.
