The yen's modest pullback Monday masks the scale of a coordinated U.S.-Japan intervention that has already cost Tokyo more than $114 billion this year.
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Yen's technical dip masks $114 billion coordinated intervention
The yen weakened slightly against G-10 and Asian currencies Monday on a technical correction, with the dollar up 0.1 percent to 157.71 yen, after the first coordinated U.S.-Japan yen-buying operation since 1998.
"Additional intervention could push the dollar below 155 yen," said Michiyoshi Kato, senior adviser at Sumitomo Mitsui Trust Bank.
Japan's Finance Minister Katayama confirmed authorities intervened Friday in coordination with the U.S. Treasury Department, which executed yen purchases through the Federal Reserve Bank of New York via Goldman Sachs and Morgan Stanley. The dollar closed at 157.40 yen in New York on Friday, the yen's strongest level since early May, after trading above 162 yen before the interventions. The Australian dollar also rose 0.1 percent to 111.14 yen. Bloomberg estimated Japan spent about 8.45 trillion yen ($53.7 billion) on Thursday alone, potentially the largest single-day intervention on record.
Combined with 11.7 trillion yen ($74.3 billion) spent from late April through late May, Japan's intervention this year totals roughly 18 trillion yen ($114.4 billion), exceeding the previous annual record of 15.3 trillion yen set in 2024. The BOJ's 8-1 vote to hold rates at 1 percent — Japan's highest since 1995 but still well below the U.S. fed funds target range of 3.75 percent — leaves the interest rate gap that drove the yen's slide largely intact.
The scale of the operation reflects a shift in U.S. policy. Treasury Secretary Scott Bessent's notepad, photographed during a Camp David cabinet meeting Friday, listed "Buy Japanese Yen (JPY) $5-10 bil" — an amount equivalent to roughly 787 billion to 1.57 trillion yen at Friday's closing rate. The New York Fed had contacted financial institutions Thursday to check dollar-yen exchange rates, a practice traders often view as a precursor to intervention.
Japan's Finance Ministry also moved to address concerns about its capacity for further intervention, saying it could use the Federal Reserve's Foreign and International Monetary Authorities Repo Facility to obtain dollars by temporarily pledging U.S. Treasury securities. The mechanism would allow Tokyo to secure dollar liquidity without selling Treasuries outright, reducing the risk that large Japanese sales of U.S. government bonds would push up U.S. borrowing costs.
Rate Gap Remains the Fundamental Driver
The Bank of Japan voted 8-1 Friday to keep its benchmark rate unchanged at 1 percent. Governor Kazuo Ueda said underlying inflation was moving closer to the central bank's 2 percent target and that policymakers needed to pay greater attention to the risk that inflation could rise more than expected, leaving open the possibility of faster rate increases. Derivatives markets now price roughly a 40 percent probability of a quarter-point hike in September, up from about 30 percent at the beginning of the week.
The last time the U.S. and Japan coordinated yen-buying intervention was 1998, when the dollar traded above 146 yen. That operation, alongside the BOJ's eventual rate normalization, helped stabilize the currency, though the current gap between the BOJ's 1 percent rate and the upper end of the U.S. fed funds range at 3.75 percent remains the structural force pulling the yen lower.
Intervention Without Rate Support May Be Short-Lived
Evercore ISI strategists Marco Casiraghi and Lu Gang cautioned that foreign exchange intervention without support from interest rate policy would probably have a relatively short-lived effect. The wide rate differential continues to encourage investors to borrow lower-yielding yen and purchase higher-yielding dollar assets, placing persistent downward pressure on the Japanese currency.
Atsushi Mimura, Japan's vice finance minister for international affairs, told reporters Friday that Tokyo was receiving more than moral support from U.S. authorities. Japan and the United States could announce a joint policy response to the yen's weakness as early as this week, Reuters reported, citing Kyodo News.
The question now is whether the coordinated intervention marks a durable policy shift or a one-off defense. If the BOJ accelerates rate hikes in September and the Fed signals cuts, the yen could sustain its gains. If not, the dollar's pullback below 162 yen may prove temporary, and Tokyo's record intervention spending will have bought time rather than a structural fix.
This article is for informational purposes only and does not constitute investment advice.
