Bessent warns weak yen could trigger Asian currency wars

U.S. Treasury Secretary Scott Bessent warned on Monday that continued weakness in the Japanese yen could fuel inflation in Japan and put pressure on other Asian currencies, days after Washington and Tokyo confirmed their first joint currency intervention in 15 years.bbc+1

Bessent said the United States "will not hesitate to participate in further joint intervention" and cautioned that further yen weakness could contribute to competitive devaluations across the region.cnbc+1

Joint Intervention Shakes Currency Markets

The warning came after one of the most dramatic episodes in global currency markets in decades. Japan and the United States confirmed over the weekend that they jointly intervened last week to halt the yen's slide to a 40-year low of 163.99 per dollar, reached on July 23.reuters+1

Bank of Japan data indicated Tokyo may have sold nearly $59 billion to buy yen on Thursday alone — likely a single-day record — before a confirmed joint operation with Washington on Friday. The Federal Reserve Bank of New York sold euros to buy yen on behalf of the U.S. Treasury, according to a Financial Times report cited by multiple outlets. A Reuters photograph from a Camp David cabinet meeting on Friday showed Bessent's handwritten note reading "To Do: Buy Japanese Yen (JPY) $5-10 bil".bbc+3

By Friday's close, the yen had strengthened to 157.40 per dollar, its strongest since early May.fortune+1

Why Washington Stepped In

The rare U.S. involvement reflects multiple concerns. President Trump has repeatedly criticized Japan's weak currency as giving its manufacturers an unfair trade advantage. But Washington also faces a more immediate risk: Japan is the largest foreign holder of U.S. Treasuries, and Japanese selling of those bonds to fund yen purchases could push up American borrowing costs already under pressure from inflation linked to the Middle East conflict.straitstimes

Trump called the intervention "a sign of friendship" with Tokyo. Japan's Finance Minister Satsuki Katayama said the action "countered excessive volatility and disorderly movements in the Japanese yen in recent months" and warned that authorities "will not hesitate to conduct further joint intervention".nytimes+2

Inflation and Political Pressure

The yen's prolonged decline has driven up import costs for energy, food, and raw materials in an economy heavily dependent on foreign supplies, fueling a cost-of-living crunch that contributed to the downfall of two prime ministers before current leader Sanae Takaichi took office. Japanese officials see mounting evidence that companies are passing higher costs on to consumers more quickly than in the past.straitstimes

The Bank of Japan raised its benchmark rate in June to the highest in 31 years, but the rate remains low by international standards, and the interest rate gap with the United States continues to weigh on the currency.reuters+1