The weak yen and the weakening US dollar are signs of financial fragility

FOR decades Japanese investors sought higher-yielding assets abroad, while interest rates at home stayed low. As a result, the country has amassed foreign investments worth over US$10 trillion, more than twice its annual gross domestic product.

Yet today, rates are rising and the effects are rippling through markets. America’s treasury secretary has blamed bond ructions in Japan for movements in long-term Treasury yields. After the yen fell this month to near its weakest against the US dollar since 1990, the Japanese and American governments are reportedly considering propping it up.

Yet currency intervention is a distraction. It will not cut the risk of financial turmoil emanating from Japan.