U.S. and Japan jointly intervene to support yen for first time since 1998

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U.S. and Japan jointly bought yen

Highlights

The U.S. and Japan jointly bought yen for the first time since 1998.
Both governments left the door open to further intervention.
Markets now expect greater pressure on the Bank of Japan.

CNBC reported that Washington joined partly to reduce the risk that Japan would finance future intervention by selling large holdings of U.S. Treasuries, potentially driving American borrowing costs higher. The yen had weakened to 163.73 per dollar on Thursday before recovering to 157.57 on Friday and strengthening further after Tokyo confirmed the operation.

A rare joint defense of the yen

Japan’s Finance Ministry said the intervention was coordinated with the U.S. Treasury to address excessive volatility and disorderly currency movements. It was the first joint yen-buying operation since 1998 and the first coordinated intervention involving both countries since the Group of Seven acted to weaken the yen after Japan’s 2011 earthquake.

The yen briefly strengthened to about 155.20 per dollar on Monday, well above its recent low near 164. Japanese and U.S. officials indicated that further coordinated purchases remained possible, increasing the risks for investors betting on continued depreciation.

Protecting treasury markets

Washington’s participation reflected concerns extending beyond foreign exchange. Japan is a major holder of U.S. government debt, and large Treasury sales to raise dollars for unilateral intervention could increase yields in an already fragile bond market.

Both governments highlighted the Federal Reserve’s Foreign and International Monetary Authorities repo facility. The program allows approved foreign authorities to obtain temporary dollar liquidity against Treasury securities instead of selling them outright. Analysts viewed that signal as an important safeguard for U.S. funding markets and a potential source of financing for future intervention.

The BOJ becomes the next test

Intervention can disrupt one-way currency trades, but it does not remove the structural forces weakening the yen. Japan still has lower interest rates than the United States, while elevated energy-import costs and fiscal concerns continue to weigh on the currency.

Markets are therefore focusing on whether the Bank of Japan will raise its 1% policy rate in September rather than waiting until October. Expectations of earlier tightening lifted the two-year Japanese government bond yield and could provide more lasting support than repeated currency purchases.

Reports that the U.S. sold euros rather than dollars to purchase yen added uncertainty. Some analysts argued that the unusual structure weakened the signal by prompting questions over why Washington avoided direct dollar sales.

A broader financial alliance

The operation links yen stability, Japanese monetary policy, and U.S. Treasury-market resilience. Its longer-term success will depend less on the initial rebound from 163.73 than on whether the BOJ tightens policy and both governments remain willing to act together.

We also reported that the Bank of Japan keeps rates steady as the weak yen adds pressure.

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