The US and Japan are bonding

It feels like there’s enough chaos here in the US to keep us all busy—but one of the biggest risks to our economy is suddenly coming from thousands of miles away.

Following rumors and its inclusion on a “to-do” list from Treasury Secretary Scott Bessent, the US and Japan teamed up on Sunday to support the yen. The Japanese currency fell to a 4-decade low last week thanks to Japan’s policy of keeping interest rates much lower than the US, making dollar-dominated assets more attractive in comparison.

“Friday’s coordinated foreign exchange actions countered disorderly yen movements,” Bessent wrote on X. “We will not hesitate to participate in further joint intervention.”

It may sound like a boring currency negotiation, but the move to prop up the yen is actually a pretty big deal: It’s the first joint intervention in 14 years, and it’s the first time since 1998 that the US is actively participating in strengthening the yen.

Fixing fixed income

While Bessent framed the move as an effort to curb “disorderly” currency markets, many investors think there’s another motive at play: preventing Japan from dumping Treasuries and weakening the US bond market, which is currently flashing bright red warning signs.

At the end of last year, traders were pricing in up to three rate cuts in 2026 from the Fed. Now, after inflation flared thanks to the Iran war, investors are expecting up to two rate hikes this year—and when rates rise, bond yields climb, too. Yet even while the Fed kept rates steady last week, yields still skyrocketed: The yield on the US 30-year note hit 5.27%, its highest since the financial crisis in 2007.

That’s where Japan comes in. The Japanese government is the single largest foreign holder of US Treasury debt in the world. If the yen depreciates further, the Japanese government could be forced to sell Treasuries to raise the funds needed to prop up the yen. That would add supply to an already strained Treasury market and push yields higher.

Quick reminder: Bond prices and yields move inversely. One of the biggest owners of US treasury bonds going on a selling spree would put even more pressure on an already buckling bond market.

Why should you care about the yen?

Spiking yields tends to hurt stocks (especially growth names) because it makes borrowing more expensive and offers investors a compelling alternative to the market. But it isn’t just an issue for stocks: If yields remain elevated, mortgage rates could drift higher, which would make homeowning more expensive and create a domino effect through the rest of the economy.

Higher Treasury yields would also mean that financing for everything from student loans to credit cards to car loans could suddenly cost more. It would be especially bad news for the hyperscalers borrowing massive amounts of money—and supporting the entire stock market—in financing their datacenter buildouts.

Over the past month, most macro indicators have painted a pretty okay—though not perfect—picture of the economy. But the US’s aggressive move to protect the bond market is enough to make investors wonder whether everything is really alright under the surface.—LB