Treasury Secretary Scott Bessent characterized U.S. support for Friday’s yen intervention as a sign that President Donald Trump’s government “delivers for America’s trusted partners.” Perhaps. The more plausible reading? The administration is growing increasingly uneasy with its own climbing borrowing costs and wants to avoid forced selling of Treasury securities by their biggest overseas holder.

When the U.S. joined its Asian ally in bolstering its currency last week, it marked the first American yen intervention in 15 years (and the first one to support the yen in 28 years), bringing the Japanese currency to 155.23 per dollar, the strongest since May. The yen had been the worst-performing Group of 10 currency in the previous 12 months due to its relatively low bond yields, concerns about both fiscal and monetary policy credibility, and a terms-of-trade shock delivered by the U.S.-Iran war (Japan imports around 87% of its energy).

The long-term fix is obvious: If Japan wants to shore up its currency and guard against imported inflation, the Bank of Japan will have to raise interest rates, which are still negative in inflation-adjusted terms, to compete with rising rates around the world. Yet policymakers have been slow-playing the normalization, and markets have grown suspicious of their independence from Prime Minister Sanae Takaichi’s government.

Takaichi, for her part, shares Trump’s penchant for weighing in on monetary policy and has better legal levers than the U.S. leader to achieve her objectives. The upshot is that the Japanese currency has been trading near its weakest in four decades, and an intervention like last week’s is just a stopgap that kicks the can on the underlying issues.

But here’s the U.S. problem: In today’s global markets, nothing happens in a vacuum. If Japan had intervened alone, it would likely have had to sell some of its $1.1 trillion Treasury stockpile, potentially pushing U.S. borrowing costs higher. Japan has intervened on its own, on and off, since 2022, with its Treasury holdings frequently dipping afterward. Japan’s holdings fell by about $67 billion in May, the only other month this year that it intervened to support the currency.

With yields on 10-year Treasury notes near a 19-month high and 30-year mortgage rates rising in tandem, a Trump administration that promised to bring borrowing costs down is heading into midterm elections looking like a failure by those metrics. After pushing for fiscally irresponsible tax cuts and entering an Iran entanglement that’s added to global inflation pressures, it’s now reaching for gimmicks to mitigate the situation.

Treasury Secretary Scott Bessent, a former hedge fund manager, described the U.S.’s decision as an effort to protect global “economic security” and counter “disorderly yen movements,” saying Treasury “will not hesitate to participate in further joint intervention” and calling the yen substantially undervalued. Bessent encouraged Japan to use a Federal Reserve repo facility in the future, which would allow Japan to pledge its Treasuries as collateral in return for dollars, instead of selling them on the open market. He also plans to “encourage” the Fed facility to be upsized. In other words, he’s trying to prevent an ally from dumping America’s securities.

This isn’t the first example of the White House acting to support Treasuries. The Trump administration has adjusted bank capital requirements to allow banks to hold more bonds and supported the GENIUS Act to establish a framework for stablecoins that invest in U.S. safe assets — both a marginal boost for Treasury demand. To fund itself, the administration is also leaning on shorter-term Treasury securities to an unusually high degree, easing pressure on longer-term yields, which hold particular salience for the housing sector and other consumer borrowing rates. Bessent openly criticized his predecessor Janet Yellen for pursuing the latter policy during Joe Biden’s presidency, a choice he characterized as politically convenient and myopic at the time. The risk is that rates will be even higher in the future, and you’ll eventually have to pay the piper.

None of this has worked for very long, if at all, to control yields in a market focused on inflation and, to some degree, on America’s persistently high fiscal deficit. Not only are the 10-year Treasury yields that Bessent purported to prioritize now near the highest of the Trump administration, but signs of eroding market trust are sprinkled across government securities. Various estimates of the U.S. term premium are again flirting with their highest levels in a decade. And the so-called real yield — the yield on the securities after subtracting inflation expectations — is close to its highest since the global financial crisis.

The U.S. yen intervention appears to have been small and, in that sense, low-cost for now; its market-moving power has come primarily from the signaling that Japan isn’t alone. As such, it’s possible that the trade will still work out for both the Trump and Takaichi governments, but the path to a victory lap is narrow: This has to be followed relatively soon with more intervention, since such moves tend to fade quickly from market pricing. And the Bank of Japan will have to take real action with further policy rate normalization. The market, perversely, now thinks that a rate increase in September has become less likely, since this stopgap measure has the effect of buying time.

The last time the U.S. intervened to strengthen the yen was in June 1998, when Japan was reeling from a financial crisis. The yen surged, but the move was partially undone within just a week. Only U.S. rate cuts a few months later — which shrank the spread between U.S. and Japanese fixed-income instruments — meaningfully strengthened the yen. That’s not happening anytime soon with inflation at 3.5% in the U.S., so Japan will just have to tighten. Otherwise, this will all be for nothing.

As for Trump and Bessent, they too will have to take their medicine eventually. The only way to durably rein in Treasury yields is to exercise fiscal restraint and stop adding marginal pressure to an already challenging inflation problem through tariffs and geopolitical misadventures.

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Jonathan Levin is a columnist focused on U.S. markets and economics. Previously, he worked as a Bloomberg journalist in the U.S., Brazil and Mexico. He is a CFA charterholder.

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