Japan, US team up to defend yen in rare forex move — first since 2011

TOKYO – Japanese and U.S. monetary authorities bought yen during foreign exchange trading in New York, according to sources, marking their first joint intervention in 15 years.

The yen surged against the dollar afterward, briefly reaching ¥157.20 per dollar — its strongest level against the U.S. currency in about 2½ months.

Tokyo and Washington are expected to soon announce that they took that action, as well as their future policies to avert a situation involving a weak yen and strong dollar.

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The finance ministries from both sides made meticulous behind-the-scenes preparations for Friday’s currency intervention. Japan and the United States share a common interest in correcting tendencies toward a super-weak yen and strong dollar and will likely intervene in the currency market again in the future.

However, pressure to sell the yen remains strong — driven in part by concerns over Prime Minister Sanae Takaichi’s proactive fiscal policy — and it remains unclear whether the trend can be reversed.

Turning point

“We had been thinking about a joint currency intervention for quite some time,” a Japanese government official told The Yomiuri Shimbun on Saturday, revealing that Tokyo had long coordinated the move with Washington.

Friday’s intervention was based on a joint statement announced in September last year by the Japan and U.S. finance ministers. That statement suggested the possibility of currency intervention in response to “excess volatility and disorderly movements in exchange rates.”

Successive U.S. administrations have at times taken a critical stance toward currency intervention by Japan. Former U.S. Treasury Secretary Janet Yellen believed currency intervention was warranted only in “rare and exceptional circumstances,” and the United States had intervened in the exchange market with Japan only at times of major disasters or financial crises.

However, the administration of U.S. President Donald Trump, which aims to reduce the trade deficit, is believed to be averse to a strong dollar, as it makes the U.S. manufacturing sector less competitive when it comes to exports. Japan, too, wants to avoid excessive depreciation of the yen, as it leads to rising prices.

“The joint statement marked a turning point in strengthening Japan-U.S. coordination on exchange rates,” a Japanese Finance Ministry official said.

Finance ministers meeting

In January, U.S. authorities conducted a rate check by consulting currency dealers about exchange rate levels. This action is considered a precursor to intervention, and served as a strong deterrent against speculative yen selling.

Having received a kind of approval from the United States, the Japanese government and the Bank of Japan bought yen and sold dollars on April 30 in the first intervention in 21 months. They continued to step into the market intermittently thereafter.

According to a Japanese government source, Japanese and U.S. monetary authorities began coordination in earnest following the May 12 meeting between Finance Minister Satsuki Katayama and her U.S. counterpart Scott Bessent.

“We’re thinking about Japan-U.S. cooperation over the long term. The significance of this meeting will become clear someday,” a senior Finance Ministry official said at the time.

While Japan and the U.S. deepened their cooperation, the trend of selling yen continued unabated in the market. This was driven by persistent views that the Takaichi administration was cautious about the BOJ raising interest rates, as well as concerns about Japan’s fiscal health stemming from measures such as the consumption tax cut.

In July, the yen plunged to ¥163.90 to the dollar, the lowest level in 39 years and 8 months.

Working in tandem

Washington is believed to have decided to intervene in the market together with Tokyo partly to prevent increases in U.S. interest rates.

Japan is the largest foreign holder of U.S. Treasury bonds, so there is a risk that U.S. long-term interest rates would rise — and bond prices would fall — if Japan were to sell large quantities of U.S. Treasury bonds to raise funds for intervention. With U.S. midterm elections approaching in November, the Trump administration’s true intention is to avoid a rise in interest rates linked to mortgage rates and other factors.

Tokyo and Washington are expected to make an announcement as early as this week about Friday’s intervention and future policy directions, which will likely involve steps to avert a weak yen and strong dollar.

“Friday’s joint intervention reflects the matching interests of the United States, which wants to correct the strong dollar, and Japan, which wants to put the brakes on the weak yen,” said Takahide Kiuchi, executive economist at Nomura Research Institute, Ltd. “But, the effect will be temporary, and the exchange rate may return to pre-intervention levels within the next few weeks.”

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