Japanese Finance Minister Satsuki Katayama is expected to announce on Monday that Tokyo and Washington have undertaken joint action in the currency markets to counteract the yen's depreciation. This marks the first coordinated intervention between the two countries since 2011, aimed at bolstering the Japanese currency which had fallen to near 40-year lows against the dollar. Sources indicate that the operation is still ongoing, with market participants anticipating further action.
The intervention saw Japan selling as much as $58.97 billion to support the yen during New York trading hours on Thursday. On Friday, the yen made sharp gains, reaching 157.40 to the dollar, its strongest level since early May, after flirting with levels last seen in 1986 just two days prior. US Treasury Secretary Scott Bessent, who publicly stated the yen "seems very undervalued," was photographed with a notepad instructing to "Buy Japanese Yen (JPY) $5-10 bil," further signaling US support. The US Treasury also reportedly informed several banks on Friday to be ready for potential intervention in the yen market.
This joint effort is driven by concerns in both nations over inflation. A weaker yen has fueled inflation in Japan by increasing import costs, while Washington is concerned that Tokyo's inability to prevent a sell-off in the yen and Japanese government bonds (JGBs) could exacerbate rising US Treasury yields. The Bank of Japan (BOJ) kept monetary policy steady on Friday but hinted at future interest rate hikes, suggesting close coordination with the Ministry of Finance. Japan's access to the US Fed's repurchase facility provides dollar liquidity without requiring the sale of US Treasuries, easing potential funding constraints for intervention. The intervention also appears to address worries about Japan's fiscal sustainability and the potential for a sell-off in US debt if Japan were to fund intervention solely by divesting its US Treasury holdings.
