The US Treasury, in a coordinated effort with Japan, reportedly intervened in the currency market by selling euros to buy Japanese yen. This action, confirmed by Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent, was aimed at strengthening the Japanese currency, which had fallen to near 40-year lows. The intervention, the first joint yen-buying FX intervention between the US and Japan since 1998, also aimed to counter what the US Treasury Secretary described as "disorderly" movements and "substantial undervaluation of the yen."
The joint intervention appears to have had an immediate impact, with the yen strengthening further below the 158 level and the dollar dropping against the yen. Before this joint action, Japan's Ministry of Finance may have already intervened earlier in the week, potentially selling as much as $58.97 billion to buy yen. The US Treasury Secretary Scott Bessent had signaled commitment to shoring up the yen, with a notepad during a Camp David meeting showing "Buy Japanese Yen (JPY) $5-10 bil."
Analysts, however, are skeptical about the long-term effectiveness of the intervention given underlying economic factors such as low real interest rates in Japan and concerns about fiscal spending. While the joint intervention is seen as historic and significant in clearing out yen shorts in the short term, a more durable shift in the USD/JPY exchange rate would likely require fundamental changes. The Bank of Japan is forecast to deliver faster rate hikes, which could contribute to a lower USD/JPY over time. The US has also indicated readiness to participate in further joint intervention if necessary.
The intervention also highlights broader concerns about global financial stability. Analysts suggest the move underscores both countries' resolve to prevent a sell-off in the yen and Japanese government bonds from causing global spillovers, such as adding upward pressure on already rising US Treasury yields. The US has also considered increasing the size of the Federal Reserve's repurchase facility to provide temporary dollar liquidity, further supporting Japan's ability to manage its currency. President Donald Trump described the US involvement as a "signal of friendship" and a move to help the world economy.
