U.S. Treasury Secretary Scott Bessent appears to be following a path similar to Japan’s — artificially suppressing Treasury yields to cope with an out-of-control fiscal deficit.

However, one top economist warns that this approach will not solve the problem and could instead trigger a dollar-decline spiral, echoing the fate of the Japanese yen.

Robin Brooks, a senior fellow at the Brookings Institution and former chief economist of the Institute of International Finance, sounded the alarm on August 21 in a Substack article about the Treasury Department’s recent announcement to increase long-term bond buybacks. Brooks argues that the buyback plan is merely “financial engineering” that fails to address the underlying issue — a deficit expected to reach $2 trillion this fiscal year. He warned: “When fiscal policy is out of control, the government can obviously do a lot to cap yields, but that only puts downward pressure on the currency because the market can’t get the risk premium it needs. The debt crisis then turns into a currency crisis — and that’s exactly why the yen has been falling for years.”

Brooks has long pointed to Japan as an example, where the government has artificially suppressed bond yields to manage its debt burden exceeding 200% of GDP, but the market cannot properly price Japanese debt, leading investors to continuously sell the yen. Now, the Treasury’s buyback program has already triggered a decline in the dollar — which Wall Street calls the return of the “weak-dollar trade.” At the same time, precious metals prices have jumped, indicating that investors are preparing for further dollar depreciation.

“The market is ready for a return of the dollar-decline trade — and as Japan has shown, once a currency enters a downward spiral, stabilizing it is nearly impossible,” Brooks warned. “The U.S. is playing with fire.”

Not all analysts share this pessimistic view, however. Jonas Goltermann, chief markets economist at Capital Economics, said the “weak-dollar trade” concerns are overblown. He expects the dollar to strengthen in the coming months based on the strong performance of the U.S. economy. But he also acknowledged: “If the steady stream of unconventional policy ideas continues, that could change. So even if our view that the U.S. economy will gather more momentum proves correct, our confidence in the extent of the dollar’s rebound is diminishing.”

Lawrence Gillum, chief fixed income strategist at LPL Financial, noted that the current rise in Treasury yields is simply a normal return from the near-zero interest rate era, not a crisis or market malfunction. However, he also believes that given the massive U.S. budget deficit and the flood of new debt issued by the Treasury and AI hyperscalers, long-term yields will continue to climb. This means the yield issue will come back into focus, prompting the Treasury to take more buyback actions — even if that is more of a symbolic “Band-Aid” than a real solution.

“But it serves as a reminder that the Treasury is closely watching the market and will do what it can to prevent yields from rising too fast and too high,” Gillum added.