Why are the U.S. and Japan trying to prop up the yen and what does it mean for Canada?

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“(Japanese officials) were using the proceeds of these sales to purchase yen in some form, likely Japanese government bonds, and that would reduce yields in Japan in the short term,” Rai said.

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A weaker yen would also threaten to make Japanese exports cheaper in the U.S. and U.S. exports more expensive in Japan, which would have a negative effect on the U.S. trade balance with Japan.

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It would also impede the Trump administration’s global tariff strategy, which aims to reduce the U.S. trade deficit and pressure nations into changing trade or border policies.

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“That’s a reason why the U.S. government may want to prevent the fall in currencies,” Devereux said.

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On Aug. 3, U.S. President Donald Trump shed little light when asked about the intervention.  “Japan’s been very good ‌to us, with the exception, of course, of Pearl Harbor,” the president told reporters.

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What could happen if the yen falls?

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A weaker yen could lead to higher inflation in Japan, which imports most of its energy, food and industrial inputs in U.S. dollars. Paying more for imports would raise costs for consumers and businesses and squeeze households, while reducing confidence in the Japanese economy.

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That, in turn, could open the door to policy risk.

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“If markets think yen weakness will force the Bank of Japan to raise rates faster, that can push up bond yields and make government financing more expensive. The risk is not just higher import prices; it is a broader confidence issue, where currency weakness, fiscal credibility and borrowing costs start reinforcing one another,” Rai said.

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“Right now, the Bank of Japan is expected to raise interest rates later this year cautiously, not wanting to choke off the economy’s escape from a long period of near-zero inflation and nominal growth. More intense inflationary pressures from yen weakness could reduce their patience.”

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Did the intervention work?

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The yen’s value immediately rose following the joint intervention to a three-month high of roughly 155.23 yen per U.S. dollar, but it didn’t hold and was above 159 per U.S. dollar on Thursday.

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“We can see now that about half of the effect of the intervention looks to be gone,” Rai said.

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Devereux, meanwhile, noted that markets might believe the U.S. will follow through in supporting the yen.

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“Interventions signal to markets that the central banks are prepared to defend the value of a currency, but the signalling effect is only useful if the threat is credible. It seems that (this intervention’s) credibility was lacking,” he said. “We also haven’t seen a coordinated global intervention where all central banks intervene to make it substantially more credible, and that undermines the effect as well, particularly because the ECB wasn’t involved.”

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The yen carry trade — in which investors borrow yen at a lower interest rate and invest it in other currencies and assets offering higher yields — has also seen a partial unwind since the joint intervention, Rai said.

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The carry trade depends on low Japanese interest rates and a stable yen exchange rate, and the recent intervention has added to volatility there.

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“That said, the door hasn’t shut complete on the carry trade. There is still a wide gap between Japan and U.S. bond yields, so there is still some incentive to borrow yen and invest elsewhere, but the risks around that trade are higher now,” Rai said.

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What are the implications for Canada?

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Canada and Japan have trade relations and economic ties, but Rai said the impact of a weak yen likely wouldn’t be noticeable.