The US joined Japan in intervening to prop up the yen, a move driven by Washington's concerns about the potential impact on its own financial markets. A primary worry was that Japan, the largest foreign holder of US government debt, would have to sell large quantities of US Treasuries to finance unilateral intervention, potentially disrupting US funding markets. To mitigate this, Japan's Finance Ministry announced plans to use the Federal Reserve's Foreign and International Monetary Authorities (FIMA) repo facility. This facility allows foreign central banks to obtain dollar liquidity without selling Treasuries outright, a strategy praised by analysts like Masahiko Loo as a significant "signaling effect" cnbc.com.
Beyond the immediate funding concerns, Washington also worried that a persistently weak yen could trigger a sell-off in Japanese government bonds (JGBs). Higher JGB yields could then spill over into global bond markets, at a time when both Japan and the US are already facing rising long-term borrowing costs. This sentiment was echoed by Louise Loo of Oxford Economics, who indicated this was a key reason for US participation, highlighting a "self-preservation element" as volatile Japanese markets could destabilize the US Treasury markets and the dollar cnbc.com.
The US Treasury Secretary, Scott Bessent, was reportedly considering purchasing $5-10 billion of yen, although the actual deployed amount by the US might be smaller given its limited foreign exchange reserves of approximately $38 billion think.ing.com. Japan, in contrast, may have sold as much as $80 billion in intervention over just two days. The US's involvement aimed to provide crucial support to Tokyo, especially after previous unilateral interventions of $70 billion failed to prevent the USD/JPY from reaching a new high of 164, which in turn contributed to a 30% year-on-year increase in Japan's import prices and pressured JGBs think.ing.com.
The coordinated intervention also places increased pressure on the Bank of Japan (BOJ) to raise interest rates. Analysts now widely anticipate a September rate hike by the BOJ, with some suggesting it is a "done deal" srnnews.com. This is seen as crucial for a sustained strengthening of the yen, as intervention alone provides only a temporary effect. US Treasury Secretary Bessent has explicitly supported higher BOJ rates, viewing monetary normalization as a way to reduce excessive exchange rate volatility srnnews.com. The US is also considering increasing the size of the Fed's FIMA repo facility in the coming months, calling it an "important backstop" international.astroawani.com.
