The U.S. Treasury Department has alerted banks that it may intervene in the Japanese yen market on Friday and instructed them to "stand ready for future action," according to a source familiar with the matter. This development follows action taken by Japanese authorities to prop up the yen a day earlier, which led to the currency experiencing its largest weekly increase since February, moving away from a four-decade low against the dollar. The yen traded at 159.09 to the dollar after previously falling as low as 163.65 on Thursday.
This notification to banks, conveyed through the Federal Reserve Bank of New York, indicates that the U.S. is considering direct intervention. U.S. Treasury Secretary Scott Bessent stated that the yen "seems very undervalued" and that "excess volatility in the yen isn't healthy," suggesting the currency has "substantially overshot what would be called an equilibrium price." He also mentioned the U.S. maintains a "strong relationship and close coordination" with Japanese authorities.
While the exact method of potential U.S. Treasury intervention remains unclear, the Federal Reserve has maintained a dollar liquidity swap line with the Bank of Japan and four other major central banks since 2013. The last direct intervention by the U.S. Treasury to support the yen occurred in 2011 as part of a coordinated G7 effort after a devastating earthquake and tsunami in Japan. Japan also intervened in late April with a $73 billion operation after the yen surpassed 160 to the dollar. The U.S. Treasury has previously used its Exchange Stabilization Fund, which had about $217 billion in assets as of June 30, for such interventions, including propping up Argentina's peso market last fall.
