Bessent backs Japan's yen intervention as USD/JPY crashes 500 pips

Japan intervened to prop up the yen Thursday for the first time in three months, sending USD/JPY crashing as much as 500 pips to below 158, after US Treasury Secretary Scott Bessent called the currency "very undervalued."

"The timing was faster than expected as I saw a good chance of intervention after the BOJ's policy meeting," said Toru Suehiro, chief economist at Daiwa Securities.

The dollar slid to a more than two-month low against the yen, with the pair touching 157.99 intraday before settling near 160.20 — a 3.3% decline that marked the dollar's biggest single-day drop since 2022. The euro lost more than 400 pips against the yen, falling 2.54% to around 182.60. The move came after the Federal Reserve held rates at 3.50% to 3.75% on a 9-3 vote and second-quarter GDP missed estimates at 1.5% versus 1.8% consensus, giving Tokyo a tailwind for its intervention.

The operation carries greater weight than Japan's record 11.7 trillion yen ($73 billion) intervention in April and May, which bought only three months of yen strength before the currency slid to a 40-year low below 163 per dollar earlier this month. With Bessent's explicit backing and US authorities conducting rate checks — a precursor to potential American intervention — the coordination signals a shift in Washington's tolerance for yen weakness that could reshape the carry trade's risk calculus.

Why Washington's Backing Matters

Bessent's comments, relayed by a Fox Business Network reporter, marked the first time a US Treasury secretary has publicly endorsed a Japanese intervention while in office. "The yen seems very undervalued to me," he said. The Nikkei newspaper reported that US authorities also conducted rate checks with multiple banks — a step the New York Fed typically executes at the Treasury's direction, and one that markets read as a signal of potential US readiness to act in coordination.

The political cover is significant because Japan's previous intervention in April, while large in size, failed to reverse the yen's trajectory. The currency weakened another 2% from the 160.72 level where that operation struck, eventually breaching 163.99 — a level not seen since the mid-1980s. The 260-basis-point rate differential between the Fed's 3.625% midpoint and the Bank of Japan's 1% policy rate has made each intervention a temporary speed bump rather than a trend reversal.

"Intervening into an already-softening dollar is a materially better trade than fighting a strengthening one," said Geoffrey Yu, senior strategist at BNY Mellon. "The official flow becomes additive to a move the market was making anyway."

The BoJ Decision Looms

The intervention landed less than 24 hours before the Bank of Japan's policy decision on Friday, where the board is widely expected to keep rates at 1% but may upgrade its fiscal 2026 growth forecast to about 0.8% from 0.5%. Governor Kazuo Ueda's post-meeting press conference at 3:30 p.m. Tokyo time will be the key event, as markets parse his language for any shift in the rate-hike timeline.

Ueda faces a delicate balance. Prime Minister Sanae Takaichi's administration has been wary of further tightening, while the yen's persistent weakness — down 8.4% against the dollar over 12 months — has pushed up import costs in a country that imports nearly all its energy. Japan's core consumer prices rose just 1.6% in June, below the 2% target and the 1.7% consensus, giving the central bank cover to hold steady.

The structural forces weighing on the yen extend beyond central bank policy. Japanese investors sold $29.6 billion of US debt in the first quarter alone as domestic yields rose, and life insurers' foreign holdings now sit at roughly 40% of their peak. That repatriation flow is mechanically yen-positive but has been overwhelmed by the carry trade's daily accrual.

The question now is whether Thursday's intervention marks a genuine escalation or another temporary reprieve. The answer depends on whether Tokyo defends the 163 level on any bounce — and whether the Bank of Japan's communication tomorrow gives the Ministry of Finance institutional backup or leaves it acting alone.

This article is for informational purposes only and does not constitute investment advice.