Trump bought Japan some time but the alarm bells are ringing

August 10, 2026 — 11:59am

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The impact of last week’s dramatic interventions in currency markets by the Bank of Japan and the US Treasury to boost Japan’s yen seems to be fading. They might have to intervene again, and again.

The US and Japan acted to prop up the yen – for the first time since the 1998 Asian financial crisis – after it crashed through the 162 yen to the dollar level regarded as the BoJ’s “line in the sand” last month and kept heading northward. Before they intervened, the yen/dollar cross-rate was almost 164 yen to the dollar.

Over two days last week, the BoJ spent an estimated $US87 billion ($123.2 billion) and the US Treasury up to $US10 billion to buy yen, which drove the exchange rate up to a peak of 155.21 yen to the dollar. The exchange rate has since slipped back to just over 157.7, after hitting 158.40 on Friday.

In the absence of further interventions, Japan’s economic fundamentals – the influences which had driven its currency down – could be expected to reassert themselves.

Those are its extreme levels of government debt (more than 200 per cent of GDP, albeit that about half that is owned by the government itself after decades of bond buying), rising inflation and, despite being on track to post a budget surplus, Prime Minister Sanae Takaichi’s plan to cut consumption taxes and significantly boost spending on defence and technology.

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Stephen BartholomeuszSenior business columnist

Senior business columnist

Most significant are Japan’s suppressed bond yields, with the BoJ having orchestrated a negative real interest rate regime for much of the past three decades, during an economic winter from which Japan is only just emerging.

The BoJ’s policy rate, at one per cent, compares with the US Federal Reserve Board’s target for the federal funds rate of between 3.5 per cent and 3.75 per cent and the........

© Brisbane Times