Japan and U.S. coordinate currency intervention amid fiscal policy shifts

Japan and the United States conducted a coordinated currency intervention in late July 2026 to curb rapid yen depreciation. To avoid signaling a desire for a weaker dollar, the U.S. utilized its foreign exchange reserves to sell euros and purchase yen, rather than selling dollars directly.

This intervention coincides with Prime Minister Sanae Takaichi’s policy to reduce consumption tax on food and beverages starting in April. However, this fiscal move has drawn pressure from the U.S. administration. During the G20 meetings in late August, U.S. Treasury Secretary Scott Bessent met with Japanese Finance Minister Satsuki Katayama and Bank of Japan Governor Kazuo Ueda to urge interest rate hikes.

Critics suggest that the push for higher interest rates, intended to stabilize the yen, may conflict with Takaichi’s expansionary fiscal goals. Such a shift could increase debt servicing costs and impact private sector investment. Furthermore, the administration faces internal political pressure from the Aso faction, which remains cautious regarding consumption tax reductions.