A Big Mac costs $6.22 in the United States and just over $3 in Japan. By the logic of the index created 40 years ago by The Economist, the yen is deeply undervalued. U.S. Treasury Secretary Scott Bessent appears to agree, saying the Japanese currency looked “very undervalued.”
The gap is no longer merely a culinary curiosity. Japan and the United States jointly intervened to buy yen and halt the currency’s decline, according to sources cited by the Financial Times last week. An official announcement from Tokyo is expected on Monday. It was the first coordinated action of its kind since 2011.
Back then, following the earthquake, tsunami and Fukushima nuclear disaster, the Group of Seven sold yen to contain a surge driven by expectations that Japanese capital would be repatriated. This time, the direction is reversed: Washington and Tokyo are trying to stop the currency from falling further.
That reversal matters because a weak yen is not merely a Japanese problem. For decades, it has helped finance risk-taking across global markets.
Investors borrowed in Japan at minimal interest rates and deployed the proceeds into higher-yielding assets. The so-called yen carry trade helped sustain demand for equities, commodities, bonds and emerging-market currencies.
Brazil is a textbook example. It offers precisely what this type of trade seeks: high interest rates, a liquid currency and a large domestic government-debt market.
Those features make Brazil attractive when money is flowing in. The same liquidity makes it easy to exit when the trade reverses.
The risk, therefore, is that Brazil becomes one of the first markets investors sell when they need to raise cash. The effects could be felt in the real, long-term interest rates and equities even without any meaningful deterioration in Brazil’s domestic fundamentals.
There is an additional complication. To support the yen, Japan could sell dollars and U.S. Treasury securities. That would put upward pressure on U.S. yields and hit emerging markets through a second channel.
The U.S. response shows that this risk is being taken seriously. Japan highlighted its access to the Federal Reserve’s foreign and international monetary authorities repo facility, which allows it to obtain dollars by temporarily pledging Treasuries rather than selling them outright in the market.
That is the core of the operation. The United States wants to help Japan strengthen the yen without allowing Tokyo to dump Treasuries. Japan, in turn, wants to correct the exchange rate without triggering a broader global selloff.
This is not exactly the end of Bretton Woods 2.0. Japan never fitted perfectly into that model. But it played a similar role: exporting savings, financing the United States and supplying cheap money to the rest of the world.
Japan’s place in this financial architecture has been developing since the 1980s. After the yen appreciation triggered by the Plaza Accord, the country entered a prolonged era of low interest rates, deflation and monetary stimulus. The carry trade became a persistent by-product of that regime.
Washington and Tokyo are now trying to manage the limits of a system that depends simultaneously on cheap Japanese money and stable global debt markets.
The Big Mac Index, of course, cannot say when a currency will return to fair value. Its 40-year history shows precisely that currencies can remain mispriced for a very long time.
The problem begins when governments decide the distortion has gone too far.
A Big Mac in Tokyo costs roughly half as much as one in the United States. Correcting that gap may look like a Japanese matter. Part of the bill, however, could eventually reach Brazil.
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