Japan and the U.S. confirmed a rare joint intervention to support the yen, a move that analysts say underscores both countries' commitment to preventing global financial instability. The intervention aimed to mitigate spillovers from a depreciating yen and Japanese government bonds (JGBs), which could otherwise increase pressure on U.S. Treasury yields. Before the confirmed joint action on Friday, Bank of Japan data suggested that Tokyo might have sold as much as $58.97 billion to buy yen during its Thursday intervention in New York markets.
A key reason for U.S. participation was to avert a scenario where Japan might have to dump large quantities of U.S. Treasuries to finance its intervention. Japan is the largest foreign holder of U.S. government debt, and such sales could disrupt U.S. funding markets and potentially destabilize the dollar. The emphasis on the Federal Reserve's standing FIMA repo facility, which allows foreign central banks to obtain dollar liquidity without outright Treasury sales, was a clear signal that both nations wanted to avoid forced selling. This approach aims to maximize the signaling effect and leverage existing tools for intervention.
Washington's concerns extended beyond just the yen. A persistently weak yen could trigger further selling in JGBs, and higher yields in Japan could spill over into global bond markets. Both Japan and the U.S. are already grappling with rising long-term borrowing costs, with U.S. 10-year Treasury yields having gained almost 57 basis points since the beginning of the year. Some analysts, however, questioned the effectiveness of the intervention, with Robin Brooks of the Brookings Institution suggesting it could be counterproductive and confusing to markets. Nonetheless, the coordinated action aims to buy time for the Bank of Japan to potentially tighten monetary policy later in the year, which is seen as the ultimate solution for a stronger yen.
While the U.S. did not confirm the exact size of its intervention, a Reuters photograph indicated U.S. Treasury Secretary Scott Bessent's notepad showed a target to "Buy Japanese Yen $5-10 bil". The U.S. also signaled readiness for further action, with Bessent stating that Washington "will not hesitate to participate in further joint intervention." The U.S. is also considering increasing the size of the Federal Reserve's repurchase facility in the coming months, calling it an "important backstop." This move, the first joint intervention since 2011, highlights a shared interest in preventing a sell-off that could lead to higher U.S. Treasury yields and a destabilized dollar. However, analysts warn that structural factors driving yen weakness, such as interest rate differentials and fuel costs, need to be addressed for the intervention to have lasting effects.
