(Bloomberg) -- To Robin Brooks, the former chief currency strategist at Goldman Sachs Group Inc., Japan’s massive government debt — for now at least — is likely to doom any efforts to prop up the yen. 

That debt has swelled to the equivalent of more than 250% of the nation’s economy, more than any of its peers, according to data from the International Monetary Fund. And, he says, that’s given the Bank of Japan a strong incentive to keep interest rates low to hold down the government’s costs. 

The upshot: Barring a change in policy, that’s going to counteract any efforts to drive up the value of the yen, which is being dragged down by Japan’s adherence to the sort of rock-bottom interest rates that the US abandoned two years ago.

“This is really about debt — too much debt and that is forcing Japan into a very tough situation, keeping interest rates low and therefore transferring that fiscal distress onto the yen,” said Brooks, who is now a fellow at the Brookings Institution in Washington. “You can use your central bank to keep interest rates low even if you have a lot of debt. So Japan has been doing that and Europe has been doing it, but there are consequences.”

The consequences for Japan have been a sharply weaker yen, which has lost more than a quarter of its value against the US dollar since March 2022, when the Federal Reserve started raising rates in the US. On Monday, there was speculation that the Japanese government intervened to support the currency for the first time since 2022 when it rebounded from a 34-year low. 

There are doubts about how effective such steps will be, however, given the bigger countervailing pressures.

Read More: Yen Traders See Uphill Battle for Japan to Halt Currency’s Slide

While the BOJ has allowed rates to edge above zero, 10-year Japanese bonds still yield only about 0.9%, compared with 4.6% for US Treasuries, giving investors a strong incentive to sell the yen and buy dollars so they can’t invest in the US instead.

The BOJ is also continuing to buy government bonds through so-called quantitative easing, a step to inject cash into the financial system that the Fed has been rolling back. Brooks said that easing is effectively countering any impact to prop up the currency.

“The BOJ should tighten by allowing the 10-year JGB yield to go higher and then [Ministry of Finance] intervention would be more effective,” he said. “That’s what’s missing.” 

Brooks joined the Brookings Institution after being chief economist at the Institute of International Finance and the chief FX strategist at Goldman Sachs before that. He became a viral sensation in Brazil over his winning call on the Brazilian real in 2022. 

This year so far, the yen was the worst performer among developed nations against the US dollar, shedding nearly 10% in value. 

“It is entirely of their own making, it’s an unwillingness to bring debt down,” he said. “Where this is interesting is that it challenges the narrative that fiscal space for advanced economies is unlimited.”

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