Japan and the United States have confirmed they carried out a coordinated intervention in foreign exchange markets to support the Japanese yen after the currency fell to its weakest level in four decades. The action marks the first joint intervention by the two countries since 2011 and lifted the yen to its strongest level in almost three months.
The Japanese Ministry of Finance and the US Treasury confirmed on Monday that they jointly bought yen in foreign exchange markets late last week after the Japanese currency dropped to almost ¥164 against the US dollar, its weakest level in 40 years.
Following confirmation of the intervention, the yen strengthened to about ¥155 against the dollar during Monday trading, its highest level since early May. The currency gained more than one per cent on the day after already posting gains during the previous two trading sessions.
Japan’s Finance Minister Satsuki Katayama said the coordinated action aimed to counter excessive volatility in currency markets.
“We will not hesitate conducting further coordinated intervention,” Katayama told reporters.
The ministry said the intervention addressed what it described as “excessive volatility and disorderly movements” in the yen over recent months.
The US Treasury issued a similar message.
Treasury Secretary Scott Bessent said Washington “will not hesitate to participate in further joint intervention” and repeated his support for additional interest rate increases by the Bank of Japan.
US President Donald Trump confirmed the American role on Sunday.
“They have a weakening yen, and they wanted a little bit of help. And we’re always there for Japan,” Trump told reporters.
He added that supporting Japan was “good for the world economy.”
The operation represents the first coordinated intervention by Tokyo and Washington since March 2011, when the two countries acted together after the earthquake and tsunami that struck eastern Japan.
Bank of Japan market data indicates Tokyo spent close to $59 billion buying yen during intervention in New York trading before the joint operation received official confirmation. The United States has not disclosed the size of its purchases.
Reuters reported that a photograph taken during a cabinet meeting last week showed notes in front of Bessent referring to plans to buy between $5 billion and $10 billion worth of Japanese yen
The yen has faced sustained pressure for several years.
Japan maintains lower interest rates than most advanced economies, making the currency less attractive to investors seeking higher returns elsewhere. That difference has encouraged investors to borrow cheaply in yen and purchase higher-yielding assets denominated in dollars, adding pressure on Japan’s currency.
Markets have also reacted to uncertainty surrounding the economic policies of Prime Minister Sanae Takaichi. Her government has announced tax reductions and increased public spending while criticising higher borrowing costs. Investors have questioned how additional spending will be financed given Japan’s debt burden.
The country also faces rising import costs because it relies heavily on imported energy and food. A weaker yen increases the cost of those imports and has added to inflation pressures affecting households.
The Bank of Japan kept interest rates unchanged at its latest policy meeting but indicated another increase remains under consideration. Following Monday’s intervention, traders increased expectations that the next rate rise could come as early as September.
Japan’s two-year government bond yield rose to its highest level since 1995 as investors adjusted expectations for monetary policy.
Japan’s top currency diplomat Atsushi Mimura said the government would continue coordinating closely with the central bank.
“We will continue to align currency policy with the Bank of Japan’s monetary policy,” he said.
According to Reuters, analysts said the joint operation reduces the risk of sharp market disruption but does not change the underlying factors that have weakened the yen, including interest rate differences between Japan and the United States.
Oxford Economics also expects the intervention to slow, rather than reverse, the currency’s decline. The consultancy said it still expects the Bank of Japan to wait until December before raising interest rates, arguing that the intervention gives policymakers more time to assess the effects of previous rate increases and developments in the Middle East.
The Guardian reported that some economists believe the Trump administration also had domestic financial reasons for joining the intervention. Japan has financed previous currency operations by selling US Treasury bonds to raise dollars before buying yen. Large-scale sales of those bonds increase US borrowing costs. Analysts cited by the newspaper said US participation reduced the need for Japan to sell additional Treasuries while helping stabilise financial markets. The Guardian also reported that some observers view Japan as an important strategic ally whose economic stability aligns with broader US interests.
HT