US and Japan Step In to Support the Yen in Rare Joint Intervention
Washington joined Tokyo in buying yen after the currency fell to a four-decade low, raising the stakes for global bond markets as well as Japan’s economy.
The United States and Japan have carried out a rare joint intervention to support the yen after the Japanese currency fell to its weakest level against the dollar in about four decades.
The action is significant because it marks Washington’s first direct coordinated support for the yen since the aftermath of Japan’s 2011 earthquake and tsunami.
It also signals that the two governments view the yen’s decline not simply as a Japanese problem, but as a potential source of wider financial-market instability.
Japan’s finance ministry confirmed that the joint action on Friday was aimed at countering excessive volatility and disorderly movements in the yen.
Treasury Secretary Scott Bessent said the United States supported Japan’s efforts to correct what he described as substantial undervaluation of the currency, and both sides left open the possibility of further intervention.
The yen had weakened to almost 164 to the dollar last month, its lowest level since 1986. It strengthened sharply after Japanese and American action, briefly moving into the mid-150s against the dollar, before giving back part of that gain.
The response showed that intervention can move markets quickly, but it did not settle the deeper forces pushing the yen lower.
Japan appears to have acted first.
Bank of Japan account data indicated that Tokyo may have sold roughly $59 billion to buy yen in the New York market on Thursday.
The exact scale of the United States’ operation has not been officially disclosed.
A photograph of notes in front of Bessent during a cabinet meeting referred to buying between $5 billion and $10 billion in yen, but that image did not establish the final amount traded.
The US operation was also unusual in its mechanics.
The Federal Reserve Bank of New York reportedly sold euros to buy yen on behalf of the Treasury, rather than selling dollars.
The approach allowed Washington to support the Japanese currency while limiting a direct effect on the dollar market.
The concern extends beyond foreign exchange.
Japan is one of the largest foreign holders of US government debt.
If Tokyo has to sell large quantities of US Treasury securities to obtain dollars for repeated yen interventions, that could add pressure to American borrowing costs at a time when Washington is already managing large financing needs.
Japan has indicated that it may instead use the Federal Reserve’s Foreign and International Monetary Authorities Repo Facility.
That mechanism allows foreign authorities to obtain dollars temporarily by pledging US Treasury securities as collateral, reducing the need for outright sales of those bonds during market stress.
The yen’s weakness reflects a large gap between Japanese and American interest rates.
The Bank of Japan raised its main policy rate to 1% in June, its highest level since 1995, but the Federal Reserve’s benchmark range remains between 3.5% and 3.75%.
Higher returns available in dollar assets have encouraged investors to sell yen and buy dollars.
A weak yen creates conflicting effects for Japan.
It can improve the overseas earnings of exporters, but it also raises the domestic price of imported fuel, food and raw materials.
That is particularly painful for a country heavily dependent on imported energy, especially while higher oil prices are feeding through to household and business costs.
Currency intervention can deter speculative selling and reduce abrupt market moves, particularly when two governments act together.
It cannot permanently reverse the interest-rate gap, Japan’s import dependence or investor concerns about the country’s economic outlook.
The next test will be whether the Bank of Japan, the Treasury and Tokyo’s finance ministry can maintain confidence without needing increasingly large interventions.
The action is significant because it marks Washington’s first direct coordinated support for the yen since the aftermath of Japan’s 2011 earthquake and tsunami.
It also signals that the two governments view the yen’s decline not simply as a Japanese problem, but as a potential source of wider financial-market instability.
Japan’s finance ministry confirmed that the joint action on Friday was aimed at countering excessive volatility and disorderly movements in the yen.
Treasury Secretary Scott Bessent said the United States supported Japan’s efforts to correct what he described as substantial undervaluation of the currency, and both sides left open the possibility of further intervention.
The yen had weakened to almost 164 to the dollar last month, its lowest level since 1986. It strengthened sharply after Japanese and American action, briefly moving into the mid-150s against the dollar, before giving back part of that gain.
The response showed that intervention can move markets quickly, but it did not settle the deeper forces pushing the yen lower.
Japan appears to have acted first.
Bank of Japan account data indicated that Tokyo may have sold roughly $59 billion to buy yen in the New York market on Thursday.
The exact scale of the United States’ operation has not been officially disclosed.
A photograph of notes in front of Bessent during a cabinet meeting referred to buying between $5 billion and $10 billion in yen, but that image did not establish the final amount traded.
The US operation was also unusual in its mechanics.
The Federal Reserve Bank of New York reportedly sold euros to buy yen on behalf of the Treasury, rather than selling dollars.
The approach allowed Washington to support the Japanese currency while limiting a direct effect on the dollar market.
The concern extends beyond foreign exchange.
Japan is one of the largest foreign holders of US government debt.
If Tokyo has to sell large quantities of US Treasury securities to obtain dollars for repeated yen interventions, that could add pressure to American borrowing costs at a time when Washington is already managing large financing needs.
Japan has indicated that it may instead use the Federal Reserve’s Foreign and International Monetary Authorities Repo Facility.
That mechanism allows foreign authorities to obtain dollars temporarily by pledging US Treasury securities as collateral, reducing the need for outright sales of those bonds during market stress.
The yen’s weakness reflects a large gap between Japanese and American interest rates.
The Bank of Japan raised its main policy rate to 1% in June, its highest level since 1995, but the Federal Reserve’s benchmark range remains between 3.5% and 3.75%.
Higher returns available in dollar assets have encouraged investors to sell yen and buy dollars.
A weak yen creates conflicting effects for Japan.
It can improve the overseas earnings of exporters, but it also raises the domestic price of imported fuel, food and raw materials.
That is particularly painful for a country heavily dependent on imported energy, especially while higher oil prices are feeding through to household and business costs.
Currency intervention can deter speculative selling and reduce abrupt market moves, particularly when two governments act together.
It cannot permanently reverse the interest-rate gap, Japan’s import dependence or investor concerns about the country’s economic outlook.
The next test will be whether the Bank of Japan, the Treasury and Tokyo’s finance ministry can maintain confidence without needing increasingly large interventions.
