The weaker the yen gets, the more dangerous this becomes for the US Treasury market. The chain works:
- A sliding yen pushes up Japan's import costs, and domestic inflation climbs with it
- If the pressure becomes unbearable, Tokyo's only real option is to sell Treasuries for dollars and use them to buy back yen
- Large-scale Japanese selling would send Treasury yields soaring and US borrowing costs through the roof
America's long end has no room for that shock. The 30-year yield touched 5.28% on August 1, the high of a six-year bond bear market, just as federal debt crosses $40 trillion.
So when Bessent stepped in to steady the yen, it looked like rescuing a friend; in reality, it was about protecting the US Treasury market and heading off a global chain reaction.