Published on Aug 7, 2026 • Updated on Sep 15, 2026
This article was written by Adem Tumerkan
Content Editor, Dunham | 2025 ThinkAdvisor Luminary Award Winner | 2026 Wealthies Finalist — Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends
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The U.S. joined Japan’s July 2026 yen-buying intervention to counter excessive volatility and disorderly market moves. The operation may also have reduced the risk that Japanese Treasury sales or a carry-trade unwind would spill into U.S. markets. That Treasury-market motive is a reasonable interpretation, however, not the sole reason officials publicly gave.
Last Friday, the U.S. government did something it hasn't done in almost 30 years - and the only reason most people noticed was an accidentally photographed notepad1.
The U.S. Treasury stepped into the currency market to defend a foreign currency that isn't the dollar.
I'm talking about propping up the Japanese yen.
But - if you've been reading the Morning Pour, none of this should shock you.
We've written about the global dollar shortage2 squeezing foreign markets and keeping the dollar strong. The global monetary reset3 that's been brewing since the 2000s. How trade wars keep morphing into currency wars4. And the Triffin's Dilemma - the paradox where the world needs an endless supply of dollars to trade and save, but the more dollars the U.S. prints to meet that demand, the weaker its own currency's credibility gets.
What happened last Friday is where those threads meet - plus some.
So - is the yen intervention really about the yen? No. The Treasury doesn't particularly care about the yen.
But what it does care about is whether pressure on the yen could force Japan's government to sell its mountain of U.S. bonds to raise cash - which could send U.S. yields higher and cause problems at home.
Thus, the recent intervention is about policy, debt, and an alliance Washington can't afford to see waver.
Here's what you need to know.
Currency politics is the pattern of governments treating exchange rates as policy tools instead of free-market prices whenever the market's price becomes politically unacceptable.
Think of a currency like a thermostat. Left alone, the market usually finds the right temperature on its own - buyers and sellers balance each other out and most people never even think twice about it.
But sometimes a government walks over and grabs the dial anyway, forcing the temperature much colder or hotter than the room actually needs. That costs money to run and hold there - and it makes everyone in the room a little uncomfortable.
Here are three examples:
A cheaper currency makes your goods cheaper for everyone else to buy (and makes imports cost more). In 1985, the dollar had climbed roughly 50% since 1980, and it was crushing U.S. exporters. Five governments met at a hotel in New York and agreed to push it back down on purpose. Over the next two years, the dollar fell as much as 40% against major currencies – specifically the yen and the German mark. This was dubbed the Plaza Accord5 - a deliberate devaluation of the dollar to try and rebalance U.S. trade.
Sometimes a currency is falling so fast that it threatens to take the whole financial system down with it. During the 1997–98 Asian financial crisis6, the Thai baht and Indonesian rupiah collapsed in a matter of months, wiping out banks and pushing economies into recession. To keep that contagion from spreading further, the U.S. and Japan jointly bought yen in 1998 - the last time they did that until this year.
This is when a currency is used to attack others. For instance, in 1971, President Nixon ended the dollar's convertibility into gold partly because U.S. allies were draining American gold reserves7 under the old rules - thus he broke the system unilaterally rather than keep playing by it. More recently - and much more directly - the U.S.'s "maximum pressure" campaign against Iran aimed straight at the rial. The strategy was to starve the country of the dollars it needed to defend the rial and trigger panic8. It worked about as well as advertised - the rial collapsed from 800,000 per dollar in mid-2025 to over 1.6 million by early 2026, and mass protests against the regime followed.
Every one of those major moves happened because a government decided the market's price - or the market's rules - was one it could no longer live with.
That’s what currency politics is about.
And last week, we saw it play out - again.
By July 30, the yen had sunk to roughly 164 per dollar - its weakest level since 1986.
That's despite the Bank of Japan (BOJ) already hiking a quarter point to 1% in June - the highest since 1995 - and roughly $70 billion9 spent defending the yen that spring.
But it didn’t matter - the currency kept bleeding anyway.
So, Japan tried again.
On the morning of July 31, Japan's Ministry of Finance sold up to $59 billion of its dollar reserves to buy yen.
The next day, the U.S. Treasury joined in - creating the first joint U.S.-Japan yen intervention to strengthen the yen since 199810.
All in all, Tokyo had shown it could only slow the bleeding - whereas Washington showed up to convince markets the bleeding was actually over.
And it seems to have worked – with the yen appreciating roughly 4% in one day (a massive move for a reserve currency) and still in the 157s range.
But here’s the detail that the mainstream doesn’t talk much about.
The U.S. didn't sell dollars to buy yen - it sold euros11.
Why? Because buying yen pushes its value up (more buyers + same supply = each yen worth more). And selling euros pushes the euro's value down (more supply = each euro worth less).
Together, that pushes EUR/JPY down - meaning the euro weakens against the yen.
“But the crisis wasn't in EUR/JPY. It was in USD/JPY. So how does selling euros fix a dollar problem?”
That’s because currency markets are triangulated – thus the USD/JPY, EUR/JPY, and EUR/USD must stay mathematically consistent (or traders get a risk-free arbitrage).
For example, push EUR/JPY down while EUR/USD holds steady, and traders arbitrage USD/JPY down too.
Figure 2: Dunham, 2026
Say €1 buys ¥160. And that same euro is worth $2. That means $1 would buy ¥80.
Now, say the U.S. sells euros to buy yen. This pushes the euro down to ¥140. And if the euro is still worth about $2, then $1 now buys only ¥70.
Thus, the dollar went from buying ¥80 to buying ¥70 – which means the yen got stronger - even though the U.S. never sold a single dollar.
Traders keep these prices in line because if they didn't, someone could swap money through all three currencies and walk away with a free profit and no risk – thus it gets priced out fast (traders don’t just let free money sit out in the open like that)
It may sound a bit complicated, but the gist is that the yen strengthened without the Fed ever touching the dollar itself.
This was the workaround for helping the yen without broadly pushing the U.S. dollar down across every currency (aka if the U.S. sold dollars to buy yen, the dollar likely would’ve declined in Mexican pesos, euros, yuan, etc).
Think of it as an incision and not a full-blown chest surgery – which is the difference between currency diplomacy and currency war.
Many wonder why the U.S. didn’t just let Japan deal with the yen’s decline on its own.
But that’s an easy one to answer.
The U.S. couldn't risk a disorderly yen move because trillions of dollars in global positions depend on the yen carry-trade12.
For decades, Japan's rates sat near zero while U.S. rates sat far higher. This allowed investors to borrow cheap yen, convert it to dollars, and plow the proceeds into higher-yielding U.S. Treasuries and stocks.
This helped push U.S. asset prices higher and keep yields lower than they otherwise would’ve been.
But - carry trades can quickly go the other way. . .
In this case, it unwinds when the yen strengthens or Japanese borrowing costs rise. Loans then become harder to repay, margin calls hit, and funds sell dollar assets to raise yen.
Japan's own bond yields have climbed to roughly 2.8% - the highest since 1997 - and Japan sold close to $30 billion of U.S. Treasuries in Q1 2026 alone (the fastest pace in four years).
And that’s the main reason the U.S. stepped in.
Treasury Secretary Scott Bessent publicly said that supporting the yen was to mitigate contagion in Asia. And President Trump noted it was a "signal of friendship" after Japan requested help.
Sure, those were factors (as well as the fact that a stronger yen can make U.S. imports more attractive) – but I believe the real reason was that the U.S. wants to prevent mass selling of U.S. bonds.
See, Japan is the largest foreign holder of U.S. debt. And if the yen keeps collapsing, Tokyo's usual playbook is selling Treasuries to raise cash to buy yen - defending its currency at the U.S. bond market's expense.
Figure 4: U.S. Treasury TIC, Data as of May 2026, Dunham 2026
Obviously, the U.S. doesn't want that.
Why? Well, if foreign holders dump bonds too fast, U.S. rates would surge higher – making mortgages, car loans, credit cards, and other forms of borrowing more expensive (risking a recession).
So, alongside the intervention, the Fed's Foreign and International Monetary Authorities (FIMA) repo facility13 lets Japan borrow dollars against the Treasuries it already holds instead of selling them.
This is expected to become a “new normal” - because if the Fed keeps upsizing FIMA, Japan could end up never selling a Treasury again - just borrowing against the pile it already holds.
Said another way, an emergency mechanism could become a standing credit line via Washington guaranteeing its largest foreign creditor a permanent dollar supply in exchange for never dumping U.S. debt on the open market.
This is currency politics at its finest.
Although interventions historically work in the short term - they aren't magic.
For instance, Japan and the U.S. can slow the yen's slide, but they can't repeal the rate gap driving it (aka the gap between U.S. and Japanese rates is still too wide while Japanese interest rates aren’t high enough to boost the yen).
But there's a bigger issue underneath all this. . .
If the U.S. debt held abroad keeps growing (it is) – what happens as the pile grows and more countries land in the same spot Japan is in? What if it’s the U.K. or Canada next?
Intervention could stop being rare and become a recurring cost of running up debt with foreign creditors – putting the U.S. at risk of never-ending tinkering with foreign currency markets.
This could destabilize trade flows, artificially suppress volatility (until it explodes), and cause “moral hazard” (the act of taking greater risks when someone else is expected to absorb the losses or bail you out).
The point is, yes intervention can help. But it’s historically a dangerous precedent and can lead to significant ripple effects.
Currencies aren't just for pricing assets or commodities anymore - they're becoming policy tools again, the way they were in the 1930s, 1970s, 1980s, and 1990s.
The yen intervention is a symptom of the same disease I've been writing about - a global dollar regime under strain.
With the widening global trade imbalances and U.S. debt still climbing - I think we should expect more of this as governments try to tilt things in their favor.
We're entering the next phase of currency politicking.
And time will tell how it plays out.
Why is the Japanese yen falling against the U.S. dollar? The Japanese yen dropped against the dollar due to a wide interest rate gap between both countries. The Federal Reserve raised interest rates to slow inflation while the Bank of Japan kept rates near zero. Investors borrowed cheap yen to buy higher-paying dollar assets through the carry trade. That steady selling pushed the yen down toward historic lows.
Is the Japanese yen pegged to the U.S. dollar? No, the Japanese yen is a floating currency rather than a pegged one. Its value moves freely based on supply and demand in foreign exchange markets. Japan ended its fixed exchange rate in 1973 after the Bretton Woods system broke down. Even so, Japan's Ministry of Finance steps in to buy or sell currency when sharp price swings threaten the broader economy.
Is Japan dumping U.S. Treasuries to defend the yen? Yes, Japan has sold U.S. Treasury debt to fund currency interventions that support the yen. As the largest foreign owner of American debt with over $1.1 trillion in assets, Tokyo needs cash dollars to buy back its currency. Japan sold nearly $30 billion in Treasuries in early 2026, creating market worry that much larger sales might follow.
What happens if Japan dumps U.S. debt? If Japan sells off its Treasuries, bond prices would drop and yields would climb fast. Higher yields raise the cost of credit across the whole economy. That means everyday Americans and local businesses would quickly pay more for mortgages, car loans, and credit cards.
Why is the U.S. propping up the Japanese yen? The U.S. stepped in to help stabilize the yen to keep Japan from selling Treasuries on the open market. Washington let Tokyo borrow dollars against its bonds through a Fed loan facility instead of selling them off. This move protected American interest rates and stopped a messy selloff in global markets.
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