Did Trump Give Japan Only "Time"? The Serious Situation in Japan Unable to Stop Yen Depreciation

In the summer of 2026, the landscape surrounding the Japanese yen entered a clearly different phase.

The level of 160 yen to the dollar was no longer unusual, and in July, the yen temporarily fell to nearly 164 yen. This marked a historic depreciation of the yen not seen since the 1980s.

In response, the Japanese government played the card of yen-buying intervention. This time, it wasn't just Japan; an unprecedented U.S.-Japan joint intervention took place, with the U.S. also joining in yen-buying.

The impact was significant.

The yen surged to the 155 yen range, moving nearly 9 yen in a short period, delivering a strong warning to market participants who had been selling the yen.

However, the issue lies in what happened afterward.

As time passed since the intervention, the yen weakened again, returning to around 158 yen. The market began to sense the possibility of testing 160 yen again, or even beyond.

The view pointed out by the Australian newspaper, The Sydney Morning Herald, that "Trump bought Japan some time, but the alarm bells are ringing," is extremely important when considering this issue from Japan's perspective.

The recent U.S.-Japan joint intervention did not end the yen's depreciation.

It may have only bought "time" until Japan faces the root causes of the yen's depreciation.

Japan and the U.S. acted near 164 yen

What is particularly important in this phase is that it wasn't just a simple yen-buying by the Japanese government.

On August 3, the Ministry of Finance officially announced that it had conducted yen-buying intervention in cooperation with the U.S. Treasury on July 31, Eastern Time.

While U.S.-Japan coordinated intervention in the foreign exchange market itself has not occurred since after the Great East Japan Earthquake in 2011, it is extremely unusual for the U.S. to cooperate with Japan to "buy yen and stop the yen's depreciation," which hasn't happened since 1998.

Finance Minister Satsuki Katayama explained that it was in response to the "excessive fluctuations and disorderly movements" seen in the recent yen exchange rate.

More importantly, he clearly stated, "We will not hesitate to conduct further coordinated interventions in the future."

In other words, to the market,

"This is not just a one-time event."

This message was sent.

In foreign exchange intervention, it is not only about how many trillions of yen are invested, but also about making market participants think, "It might happen again."

Every time hedge funds and short-term investors try to build up yen-selling positions, there is a possibility that the Japanese and U.S. governments will suddenly conduct massive yen-buying.

That alone poses a significant risk to speculative yen-selling.

In fact, former Bank of Japan officials have noted that the symbolic significance of the U.S. standing behind Japan is very large, making it difficult for speculators to easily initiate dollar-buying and yen-selling.

Why did the U.S. help Japan's yen?

There is a question that arises here.

Why did the Trump administration feel the need to go to such lengths to support the yen?

Simply thinking, "They helped their ally Japan," only reveals half of the issue.

For the U.S., the yen's crash is not unrelated.

Japan is a major holder of U.S. Treasury bonds.

If the Japanese government uses a large amount of foreign reserves to stop the yen's depreciation, it may need to cash in its U.S. Treasury holdings depending on the situation.

If Japan sells a large amount of U.S. Treasuries on the market, there will be downward pressure on U.S. Treasury prices. On the flip side, there will be upward pressure on U.S. long-term interest rates.

In other words, leaving the yen depreciation issue to Japan alone could have repercussions on the U.S. financial market.

The U.S. itself is already facing issues of fiscal deficits and Treasury yields.

If a chain reaction of the yen's sharp decline, destabilization of Japanese government bonds, capital repatriation from Japan, and U.S. Treasury sales occurs, Japan's currency issue could spread to the world's largest bond market.

It is believed that these circumstances are also behind U.S. Treasury Secretary Scott Bessent's emphasis on supporting Japan.

This intervention is not simply a scenario of "the U.S. rescuing Japan."

Protecting the yen ultimately also leads to protecting the U.S. financial market. It should be seen as a coordinated action where the interests of both Japan and the U.S. aligned.

For Japanese people, the yen's depreciation is no longer just about "corporate profits"

For a long time, in Japan, it was repeatedly explained that a weaker yen was a "tailwind for exporting companies."

Indeed, for companies with large overseas sales, profits increase when converting dollars earned overseas into yen.

However, in the current Japanese economy, it is difficult to emphasize only the benefits of a weaker yen.

Japan imports a large portion of its energy, food, and raw materials from overseas.

If the yen falls, more yen is needed to buy the same $100 worth of goods.

Imported goods that were 12,000 yen at 120 yen to the dollar become 16,000 yen at 160 yen.

The difference is about 33% just from the exchange rate.

Since companies cannot absorb all the increased costs, they eventually pass them on to sales prices.

The impact of the yen's depreciation spreads to the prices of goods that households purchase daily, such as supermarket food, gasoline, electricity and gas charges, daily necessities, dining out, and clothing.

In that sense, the current yen depreciation is not just a foreign exchange market issue but a problem of "declining purchasing power for Japanese people."

When traveling abroad, this change becomes even more apparent.

From a time when exchanging 10,000 yen yielded around $80, now it only yields in the $60 range, reflecting the yen's decreased value.

The feeling that "Japan has become cheaper" experienced by Japanese people abroad is not just an impression.

It is also an indication of the declining purchasing power of their own currency.

Companies are no longer "welcoming" the yen's depreciation

Interestingly, caution against the yen's depreciation is also becoming noticeable among Japanese companies themselves.

In interviews with Japanese corporate executives reported on August 10, representatives from companies like Mitsubishi Electric, Mitsui & Co., and Mitsubishi Corporation expressed concerns not only about the yen's depreciation itself but also about the "magnitude of exchange rate fluctuations."

For companies, the most troubling aspect is not necessarily the figure of 150 yen or 160 yen to the dollar itself.

It is the movement of nearly 10 yen in a short period.

Companies procure raw materials, set product prices, and make capital investment plans with expectations for six months to a year ahead.

However, if exchange rates change by 5% or 10% in a few weeks, those assumptions collapse.

Even exporting companies are not in a situation where "anything is welcome as long as the yen is weak."

While profits earned overseas increase, the prices of imported components and energy rise.

Furthermore, if rapid yen depreciation weakens domestic consumption, it adversely affects sales within Japan.

For companies, the ideal is not extreme yen depreciation but "predictable exchange rates."

Why does the yen's depreciation return even after massive intervention?

This is where the biggest problem lies.

If the Japanese government buys a large amount of yen, the yen will temporarily appreciate.

So why is the yen sold again?

The reason is simple: foreign exchange intervention itself does not change the root causes that created the yen's depreciation.

At the core is the interest rate differential between Japan and the U.S.

If Japan's interest rates are lower than those in the U.S., global investors will borrow low-interest yen, sell those yen, and invest in dollar-denominated assets with higher yields.

This is known as the "yen carry trade."

In this structure, yen selling occurs continuously.

Even if intervention pushes the yen exchange rate back by a few yen, if the economic incentive of the interest rate differential remains, yen selling will increase again over time.

Furthermore, Japan also has trade structure issues.

If payments for energy or digital services to overseas increase, transactions to sell yen and buy foreign currency occur in terms of actual demand.

In other words, the current yen depreciation involves

yen selling due to interest rate differentials,

yen selling due to investments,

yen selling for import payments,

and capital movement to overseas assets,

all these forces are overlapping.

Government yen-buying intervention is like temporarily flowing water in the opposite direction in a massive river.

If a large amount is injected, the flow can be pushed back.

However, if the slope of the river itself does not change, the water will start flowing back in the original direction.

Should the Bank of Japan raise interest rates?

Then, naturally, the opinion arises that the Bank of Japan should significantly raise interest rates.

Indeed, if the Japan-U.S. interest rate differential narrows, the attractiveness of selling yen and buying dollars decreases.

In fact, regarding the Bank of Japan's monetary policy meeting at the end of July, the published content afterward revealed voices expressing caution against inflation risks and the need for more agile rate hikes.

Interest in additional rate hikes is rising in the market, including the Bank of Japan meeting in September.

However, in Japan's case, it is not simple.

The Japanese government has massive government debt.

If interest rates continue to rise, the country's interest payment burden will increase with a time lag.

It also affects households with mortgages.

For small and medium-sized enterprises with limited financial leeway, rising borrowing interest rates become a direct burden.

The stock market may also dislike high interest rates.

Therefore, the Bank of Japan faces

the risk that "leaving the yen's depreciation unchecked will raise import prices,"

while on the other hand,

"raising interest rates rapidly will hurt the economy and finances."

These two risks exist.

This difficult balance is one of the biggest problems Japan currently faces.

The Trump administration's support is not a "permanent guarantee"

There is another aspect that Japan must consider regarding this event.

The U.S. support will not continue forever.

President Trump has explained this response as a demonstration of the strength of U.S.-Japan relations.

However, the U.S. government is not obligated to indefinitely support Japan's yen exchange rate.

If domestic circumstances in the U.S. change, the priority of foreign exchange policy may also change.

Inflation, employment, the U.S. Treasury market, the dollar exchange rate, trade deficits, elections, geopolitics—there are countless factors for the U.S. government to consider.

From Japan's perspective, interpreting this coordinated intervention as "the U.S. will defend 160 yen in the future" is dangerous.

Rather, the question is whether Japan itself can establish economic policies to support the yen while the U.S. is cooperating.

The expression "bought time," as suggested in the original article, is very apt in this regard.

On social media, there is more doubt than "welcome"

So how did general investors and internet users view this intervention?

Looking at reactions on publicly accessible social media platforms like X, Reddit, and Yahoo! Real-Time Search, the responses are not simply "It's good that the yen appreciated."

Broadly speaking, at least four trends are visible.

The first is the welcome sentiment of "finally seriously trying to stop the yen's depreciation."

As the yen quickly appreciated from around 164 yen, there were numerous posts viewing the government as seriously trying to prevent the 160 yen range from becoming established.

In particular, the fact that the U.S. also participated was evaluated as "different in meaning from previous solo interventions."

The second is strong skepticism about the sustainability of the effect.

In overseas Japanese financial communities, reactions