Japan is worried about inflation, while the U.S. doesn’t want Tokyo to sell Treasurys. Washington and Tokyo’s joint move to boost the Japanese yen marks a historic intervention in currency markets.

Japan’s currency was testing 40-year lows before Friday’s joint move, reflecting investor concern over the slow pace of interest‑rate increases by the Bank of Japan and the prospect of more borrowing and spending by Prime Minister Sanae Takaichi. Yen weakness is great for tourists and exporters, but painful for households facing quickening inflation on imported goods. The government intervened to put a floor under the currency at around 160 yen to the dollar in April and May, but the slide resumed.

One newer source of pressure on the yen is energy. Japan is a major importer of oil and gas from the Middle East, and the supply crunch from the Iran war sent import prices skyward. Energy is priced in dollars, so importers’ currencies typically weaken when oil and gas prices rise.

Foreign investors have multiplied bets against the yen, reviving the carry trade: investors borrow yen at low rates, sell for dollars, and invest in higher‑yielding U.S. assets. For the U.S., a weak yen threatens Japan’s position as the world’s biggest single holder of U.S. Treasurys. To defend its currency, Japan must sell some holdings to acquire dollars to buy yen, but Treasury Secretary Scott Bessent wants to avoid more upward pressure on yields. Japan says it will borrow from the Fed rather than sell Treasury holdings outright if it intervenes again.