US support for the yen and China's inflation exports

A remarkable week in FX markets saw the US Treasury join Japan’s intervention to support the yen – the first co-ordinated US currency intervention in around three decades. Eimear Daly and Brian Daingerfield discuss why Washington took the unprecedented step, what it signals for US-Japan relations, and why intervention alone is unlikely to solve the yen’s structural challenges.

The discussion also explores China’s changing role in the global economy. After years of exporting deflation, China is now exporting higher prices in key sectors as policymakers encourage manufacturers to move up the value chain. 

Highlights:

* A historic intervention: The US Treasury joined Japan’s yen intervention for the first time in around 30 years, signalling strong political and strategic support for Japan.

* Intervention can only go so far: While coordinated intervention can stabilise markets in the short term, lasting yen strength will require changes in economic fundamentals, particularly Bank of Japan policy.

* Japan faces a policy balancing act: The government wants to support growth through fiscal stimulus, but markets are looking for tighter monetary policy and reassurance over Japan’s fiscal outlook.

* Rate differentials are no longer the whole story: Although narrowing US-Japan interest rate spreads should support the yen, investors are increasingly focused on fiscal policy and the outlook for Japanese government debt.

* China’s export model is evolving: Chinese manufacturers are shifting away from competing on price towards higher-value, higher-margin products, supported by industrial policy.

* China may no longer be exporting deflation: Rising export prices suggest China is beginning to export inflation instead, with potentially important consequences for global inflation and central bank policy.

* Industrial policy is reshaping global trade: Beijing is using tax policy, currency appreciation and targeted incentives to push manufacturers up the value chain and reduce reliance on low-cost exports.

* Replacing China’s low-cost manufacturing won’t be easy: Few economies have the scale or policy tools to replicate China’s manufacturing model, suggesting higher production costs could become a structural feature of the global economy.

Host: Eimear Daly, Emerging Markets Macro Strategist

Guest: Brian Daingerfield, Co-Head of G10 FX Strategy

This episode was recorded on 6 August 2026.

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