The United States and Japan confirmed a rare coordinated yen-buying intervention on Friday, marking the first joint operation of its kind since 1998 and signaling willingness to act again to support the battered currency.
The yen had weakened to a 40-year low against the dollar, sliding to 163.73 per dollar last Thursday before rebounding to 157.57 on Friday. It was trading at 157.70 per dollar on Monday. Both governments said they would not hesitate to conduct further joint interventions. The intervention matters because a sustained yen sell-off threatens to spill into global bond markets, pushing up borrowing costs for Washington and destabilizing the broader financial system as both countries grapple with rising long-term rates.
Japan’s Ministry of Finance said the operation, carried out with the U.S. Treasury Department, “countered excessive volatility and disorderly movements in the Japanese yen in recent months.” The ministry added that it “remains attentive and in close communication” with American counterparts. It will not hesitate to act again. Treasury Secretary Scott Bessent confirmed the coordinated action. “Friday’s coordinated foreign exchange actions countered disorderly yen movements,” Bessent said in a statement, adding that Washington “strongly support[s] Japan’s decisive market and monetary steps to correct the substantial undervaluation of the yen.” He said the Treasury “will not hesitate to participate in further joint intervention.” President Donald Trump told reporters aboard Air Force One on Sunday that the U.S. participated as a gesture of support for Japan and in the interest of global economic stability. “They wanted a little bit of help, and we’re always there for Japan,” Trump said. He called it a signal of friendship. The dollar fell after Trump’s comments.
Scale and mechanics
Bank of Japan data indicated that Tokyo may have sold almost $59 billion of U.S. dollars to buy yen when it intervened in New York markets on Thursday, before Friday’s confirmed joint intervention with Washington. Washington has not confirmed the size of its participation. A Reuters photograph of a notepad in front of Bessent during a cabinet meeting on Friday read: “To Do: Buy Japanese Yen $5-10 bil.” Reports that the U.S. sold euros rather than dollars to buy yen surprised markets, because coordinated intervention has traditionally been funded with dollar assets. Robin Brooks, a senior fellow at the Peterson Institute for International Economics, questioned the mechanics of the operation. He said the approach is “confusing markets and will prove counterproductive.” “This kind of twist in my opinion undercuts the efficacy of U.S. participation, because it invariably will have markets wondering why the US didn’t just fund Yen buying out of Dollars,” Brooks wrote.
Structural pressures
The yen is historically weak mainly due to Japan having much lower central bank interest rates than other major economies like the U.S., which makes the Japanese currency less attractive to international investors. The Bank of Japan last raised interest rates in June, increasing its main rate to one percent, the highest level since September 1995, but the move gave the struggling currency little lasting boost. The Federal Reserve’s benchmark rate sits in a range of 3.50 percent to 3.75 percent. Japan also faces a decades-long slide in its working-age population, low productivity, and a heavy reliance on energy imports priced in U.S. dollars. Japan intervened in April and May, buying yen, but the move triggered only a brief rebound. The yen’s weakness has pushed up import prices and stoked broader inflation, hitting household wallets and Prime Minister Sanae Takaichi’s approval ratings.
Why Washington joined
Analysts pointed to concerns over U.S. Treasury markets and Japan’s financial system as motivations for American participation. Louise Loo, head of Asia economics at Oxford Economics, said avoiding a scenario where Japan would need to dump large quantities of Treasuries to finance unilateral intervention was “possibly one of the key reasons” behind the decision. “There is a self-preservation element here,” Loo said. Japan is the largest foreign holder of U.S. government debt. Japan’s finance ministry said Monday it plans to use the Federal Reserve’s FIMA repo facility for future interventions, which allows foreign central banks to obtain dollar liquidity without selling Treasuries outright. Masahiko Loo, senior macro strategist at State Street, said the signal “may be bigger than the intervention itself.” Shigeto Nagai, head of Japan economics at Oxford Economics, told the BBC that Washington agreed to participate because it “serves its national interests by offering the prospect of significant benefits at a low cost.” He added that the two countries are expected to continue to intervene “intermittently in a coordinated manner for some time.” “Even if the actual amount of intervention is not particularly large, the prolonged sense of vigilance regarding intervention will be effective in deterring speculators,” Nagai said.
Jesper Koll, expert director at Monex, said the operation reflected a broader shift in the U.S.-Japan relationship under Trump and Prime Minister Sanae Takaichi. “U.S.-Japan cooperation and partnership has entered a new phase,” Koll said. He also argued the move sends a geopolitical message to Beijing as “China’s leadership cares about actions, not words.” The yen leapt after the announcement. The Japanese currency gained as much as 1.4 percent to hit a nearly three-month high of 155.20 per dollar, compounding a 3.8 percent surge over the previous two sessions. The rapid appreciation immediately weighed on the equity market. The Nikkei share average tumbled, reversing course from the one-week high it had achieved in the previous session. Analysts warned that the coordinated action may prove no more durable than previous interventions unless Japan addresses the structural forces driving yen weakness. State Street’s Loo highlighted that intervention can buy time, but not change the long-term trajectory. The Bank of Japan on Friday offered its most explicit signal to date of an early rate hike, even as it kept monetary policy steady. In a sign of broader policy coordination, South Korea also stepped in to buy its won currency on Thursday.