The yen has been on a persistent downward trend this year, hitting a "near 40-year low" against the US dollar in late July. To curb this historic depreciation, the Japanese government and the Bank of Japan have intervened in the foreign exchange market multiple times, with the United States taking the rare step of joining the effort to "rescue" the currency.

For sovereign nations, maintaining the independence of monetary policy is typically considered a red line for economic security. Despite the US-Japan alliance, such a coordinated intervention in the currency market is highly unusual. Reports indicate that this joint intervention is the first since the 2011 Great East Japan Earthquake, when the two countries acted together to stem a sharp rise in the yen, marking a 15-year gap between such cooperative moves.

US Treasury Secretary Scott Bessent has explicitly stated that the US will not hesitate to participate in further joint interventions to correct the yen's severe undervaluation. Meanwhile, Donald Trump has emphasized that the intervention reflects the strength of the US-Japan alliance and anticipates that Washington will reap substantial financial benefits from this joint action.

So, can the two countries' combined efforts salvage the "free-falling" yen? In the short term, the yen has indeed stabilized and recovered somewhat following the rare joint move by the US and Japan. However, in essence, this intervention is more of a financial stability measure—a way to stop the bleeding, not a cure for the underlying disease. The US can help Japan stabilize exchange rate expectations and prevent excessive yen depreciation, but it cannot secure the currency's long-term trend.

In the short term, exchange rates follow interest rates. The significant interest rate differential between the yen and the dollar has fueled carry trades in the market, where investors short the yen and go long on the dollar. As long as this gap cannot be narrowed in the near future, the market's impulse to short the yen will persist.

Over the long term, exchange rate fluctuations also reflect a country's economic fundamentals. As an export-oriented economy, Japan relies on the Middle East for 70% of its oil. Ongoing geopolitical conflicts are amplifying energy shocks that spill over into production, sharply increasing industrial costs. This supply-side cost pressure is exacerbating economic weakness and leading global markets to take a dim view of Japan's economic prospects, which is the deep-rooted cause of the yen's sustained sharp depreciation.

Looking further ahead, the structural challenges facing Japan's economy are far beyond what a single currency intervention can resolve. First, an aging population is causing labor force shrinkage and weak domestic demand, which is the fundamental reason for the prolonged economic slump. Second, the development of the real economy and manufacturing has lagged behind the financial sector. Following the Plaza Accord, Japan's manufacturing growth stagnated, overseas investment accelerated industrial hollowing out, and the massive trade surpluses were largely funneled into US bonds rather than domestic industries, hindering growth and missing a strategic transformation opportunity. Third, structural reforms have been slow. The labor market is rigid, innovation is insufficient, and Japanese companies' relatively poor performance in the recent AI wave is a clear reflection of this. These intertwined vulnerabilities mean the yen lacks the fundamental driving force for sustained appreciation.

This joint intervention brings to mind the Plaza Accord over 40 years ago. At that time, the US led the push for yen appreciation to address Japan's massive trade surplus and the economic imbalance between the two countries. That agreement set off a chain of events that reshaped Japan's economic trajectory, including a severe blow to its export industries and forced monetary easing, ultimately leading to the burst of the bubble economy.

Ironically, more than four decades later, the US has not resolved its own twin fiscal and trade deficits. Ultimately, trade surpluses are not rooted in whether a country's currency is "undervalued," but in deep-seated differences in population structure, industry composition, and other factors. Tinkering with exchange rates is clearly a counterproductive approach. When the US leads such agreements, it is not about market fairness but about "America-first" optimization. At different times, the US has forced yen appreciation to weaken the dollar and boost exports, imposed tariffs to promote manufacturing reshoring, directly impacting Japan's auto industry, and now, fearing that a weak yen could threaten US financial stability, it has stepped in to "rescue" the market. The tactics change constantly, but the underlying motive of self-interest remains the same. Allies are merely tools to serve economic interests.

When asked directly why the US supported the yen, Trump frankly stated that intervention could make money. This blunt remark reveals the true intention. The recent assault on South Korea's capital markets shows how brutal international financial games can be. Japan's exploitation by its ally is far from over.