U.S. Treasury joins Japan in Yen support, but bond policy woes linger

The U.S. Treasury’s recent partnership with Japan to support the Yen underscores the dangers of prolonged government meddling in bond markets. Japan has spent decades lowering yields by purchasing its own debt and steering institutional investors toward government bonds, a policy that enabled high borrowing despite weak growth. This approach has distorted risk pricing, hampered capital efficiency, and fostered a lucrative Yen-based carry trade that now faces collapse as inflation forces the Bank of Japan to raise rates.

The joint intervention, the first of its kind since 2011, has so far steadied the currency but does not solve the fundamental issue of yields remaining far below what inflation and rising debt demand. Treasury Secretary Scott Bessent claims the Yen was undervalued, yet the move may merely mask deeper fiscal and monetary imbalances. The piece warns that continued yield-curve repression can only postpone a reckoning for Japan’s high-debt, low-growth economy.