Why a Weak Yen Is America’s Problem

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, podcasts, radio, news.

**K. Oanh Ha** (0:09)
Investors are watching the currency markets with bated breath this week, as a historic high-stakes intervention by the US and Japanese governments send shockwaves through the global financial system. At the center of the storm, the Japanese yen. It's a quick look at the yen as Japan and the US warned of further coordinated action.

**SPEAKER_3** (0:30)
The US and Japan warned, they won't hesitate to defend the currency further.

**Ruth Carson** (0:34)
We haven't seen something like this in what, 15 years.

**K. Oanh Ha** (0:36)
President Donald Trump said the joint intervention was a signal of Washington's friendship with Tokyo.

**Donald Trump** (0:43)
They have a weakening yen and they wanted a little bit of help, and we're always there for Japan.

**K. Oanh Ha** (0:48)
The Japanese yen had been slumping for months, hitting a 40-year low against the US dollar. Treasury Secretary Scott Bessent raised concerns about yen volatility earlier this year, and currency traders have been on high alert for the US to step in to support the yen.
But the most telling clue that the US might make a move came at a cabinet meeting last Friday at Camp David. It's an honor to be here in this historic place. During that meeting, a photographer looking over Bessent's shoulder spotted something that caught his eye. A photographer from Reuters captured an image of Scott Bessent's notepad and scribbled across the page were a few words that would soon grab the attention of investors around the world.

**Ruth Carson** (1:33)
The notepad clearly displayed unlined words to do, and on it it showed, buy Japanese yen, five to ten bill.

**K. Oanh Ha** (1:42)
That's Bloomberg's Ruth Carson. She covers Asia's foreign exchange markets from Singapore.
The US stepped in to buy the Japanese yen on Friday. Ruth says it was a rare move. The US has intervened in the market for the Japanese yen only twice in the last 30 years.

**Ruth Carson** (1:59)
The fact that you've got the US essentially coming in a way to Japan's rescue shows that this is not just a Japan problem any longer.

**K. Oanh Ha** (2:15)
This is the Big Take Asia from Bloomberg News. I'm Oanh Ha.
Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever-shifting region. Today in the show, Japan and the US play tag team to rescue the yen. What's at risk for American consumers if the plan doesn't work? And why a weak yen is a problem for the global economy, not just for Japan.
Ruth, to understand what's happening this week, we actually need to flash back to Japan in the 1980s. Can you paint a picture of Japan's economy then?

**Ruth Carson** (3:00)
In a word, booming. The Nikkei gained more than 450% over a decade. It was explosive. Interest rates were still low.
Banks were gangbusters in terms of landing aggressively. There was optimism about the Japanese economy. So that fueled a frenzy of buying stocks, property, and then suddenly it came crashing down.
In 1989, the Bank of Japan raised interest rates in a big way. Over the coming months, rates went from 2.5% to 6%. It was a mental crazy increase, suddenly, almost overnight, borrowing became so much more expensive. Credit growth and the banks that were happily landing just nosedived.

**K. Oanh Ha** (3:56)
How did that long period of economic stagnation affect Japan's interest rates?

**Ruth Carson** (4:00)
So it went on for decades.
One piece of action over the period of months, a year, ended up being decades of lost growth. The BOJ eventually cut rates to zero, tried to revive growth, and Japan became the pioneer in zero interest rates to try and bolster the economy. But it wasn't until recently that we've seen Japan began to normalize.

**K. Oanh Ha** (4:28)
After decades of deflation, the Bank of Japan has come under pressure to cool inflation.
In March 2024, the Central Bank exited its zero-rates policy, raising interest rates for the first time in 17 years. Including that move, the BOJs raised interest rates five times in total.

**Ruth Carson** (4:50)
Where are Japan interest rates today? About 1%, okay?
US versus Japan, the interest rate gap at the moment is 275 basis points. Against Australia, it's 335 basis points. With emerging markets, with Indonesia, for example, there's a 475 basis points difference. With Brazil, it is over 1,300.

**K. Oanh Ha** (5:19)
That's crazy. So Japan's interest rates are very, very low compared to the rest of the world.

**Donald Trump** (5:24)
Correct.

**Ruth Carson** (5:25)
As much as a journalist, I write about Japan raising interest rates as a trader, you will look at it and go, you know what?