Japan and the United States have confirmed that they carried out a coordinated intervention in the foreign exchange market to support the Japanese yen, marking the first joint currency operation between the two countries in more than a decade. Japanese authorities said they remain prepared to intervene again if necessary, underscoring growing concern over the yen’s prolonged weakness and its potential impact on global financial markets.
The announcement came after Friday’s intervention, which Japanese officials said was aimed at countering excessive volatility and disorderly movements in the currency market. The action followed a sharp decline in the yen that had pushed it to its weakest level against the U.S. dollar in approximately 40 years.
Rare Joint Currency Action Confirmed
Japan’s Ministry of Finance confirmed on Monday that the intervention was conducted jointly with the U.S. Treasury Department. It was the first coordinated currency intervention by the two countries since 2011, when they worked together following the devastating earthquake and tsunami in eastern Japan.
According to data released by Japan’s central bank, the government may have spent as much as $36.58 billion purchasing yen during Friday’s operation. Sources familiar with the matter told Reuters that the U.S. Treasury sold euros to purchase yen, although the amount used by Washington was not disclosed.
The coordinated move reflects growing concern that continued weakness in the Japanese currency and instability in Japan’s government bond market could have broader consequences for global financial markets, including additional upward pressure on already elevated U.S. Treasury yields.
Officials Leave Door Open for Further Intervention
Japan’s Finance Minister Satsuki Katayama said the intervention was designed to counter excessive volatility in the foreign exchange market and made clear that authorities are prepared to act again if market conditions require it.
“We will not hesitate conducting further coordinated intervention,” Finance Minister Satsuki Katayama told reporters.
Katayama declined to comment on speculation over whether authorities had also intervened in the market on Monday.
President Donald Trump said on Sunday that the United States was helping Japan strengthen the yen as a gesture of friendship and in support of the global economy.
U.S. Treasury Secretary Scott Bessent also confirmed Washington’s participation in Friday’s intervention and said the United States would be prepared to take part in additional joint operations if needed.
“We strongly support Japan’s decisive market and monetary steps to correct the substantial undervaluation of the yen,” Bessent said in a statement posted on X.
Yen Strengthens Following Announcement
The confirmation of the coordinated intervention immediately boosted the Japanese currency. The yen climbed more than 1% to 155.20 per U.S. dollar, its strongest level since early May, after having traded near a 40-year low of around 164 against the dollar last month.
Although the currency later eased and traded around 157 per dollar, market participants remained alert to the possibility of additional intervention by Japanese and U.S. authorities.
Attention Turns to the Bank of Japan
The coordinated intervention has also intensified expectations that the Bank of Japan (BOJ) could raise interest rates at its next monetary policy meeting in September.
Japan’s top currency diplomat Atsushi Mimura said the government would continue coordinating its currency policy with the BOJ’s monetary policy, signaling close cooperation between fiscal and monetary authorities in responding to continued weakness in the yen.
Scott Bessent also reiterated his support for further interest-rate increases by the BOJ, reinforcing market expectations that policymakers may tighten monetary policy sooner rather than later.
Markets Price In Higher Chance of September BOJ Rate Hike
The joint intervention has strengthened market expectations that the Bank of Japan could move ahead with another interest rate increase at its September policy meeting.
The central bank left interest rates unchanged last week but indicated there was room for additional tightening in the months ahead. Following the coordinated currency action and supportive comments from both Japanese and U.S. officials, investors increasingly viewed a September move as more likely.
Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said the remarks from Japanese currency officials and U.S. Treasury Secretary Scott Bessent would likely encourage policymakers within the BOJ who favour further monetary tightening.
She said delaying action until October could risk renewed weakness in the yen, making a September rate increase appear increasingly likely.
Reflecting those expectations, Japan’s two-year government bond yield, which is particularly sensitive to near-term monetary policy, briefly climbed to 1.545% on Monday, its highest level since 1995.
Japan Continues Battle Against Weak Yen
Japan has spent months trying to slow the yen’s decline as the weaker currency raises the cost of imports, fuels inflation and increases financial pressure on households.
The issue has also become politically significant, with rising living costs weighing on public support for Prime Minister Sanae Takaichi.
Authorities have previously taken several measures to stabilize the currency, though with limited long-term success.
Tokyo’s unilateral interventions between late April and early May produced only a temporary recovery in the yen. Likewise, the Bank of Japan’s decision in June to raise interest rates to 1%, the country’s highest policy rate in 31 years, failed to deliver a sustained improvement in the currency’s value.
Before Friday’s coordinated operation with the United States, Japan had already carried out a separate intervention in New York markets a day earlier that was estimated to be worth as much as $58.97 billion.
U.S. Signals Support Through Fed Liquidity Facility
Alongside confirming the coordinated intervention, U.S. Treasury Secretary Scott Bessent said Washington would consider expanding the size of the Federal Reserve’s repurchase, or repo, facility in the coming months.
He described the facility as an important safeguard that could help provide temporary U.S. dollar liquidity during periods of market stress.
The comments came after Japan’s Finance Ministry stated over the weekend that it has a broad range of tools available to address liquidity needs, including access to the Federal Reserve’s repo facility.
Introduced in 2020 during the COVID-19 pandemic, the facility allows foreign central banks to obtain temporary dollar funding by using U.S. Treasury securities as collateral, reducing the need to sell those holdings outright during periods of financial stress.
Analysts said the mechanism could ease funding pressures if Japan needs to continue intervening in currency markets while avoiding large-scale sales of U.S. Treasuries.
Analysts Question Long-Term Impact of Intervention
While the coordinated action helped strengthen the yen in the short term, several market analysts cautioned that intervention alone may not reverse the broader forces weighing on the Japanese currency.
Analysts pointed to factors such as higher energy import costs linked to tensions in the Middle East and the continuing interest rate gap between Japan and the United States as key drivers of the yen’s weakness.
Rinto Maruyama, FX and rates strategist at SMBC Nikko Securities, said the Federal Reserve’s repo facility is unlikely to significantly change market perceptions about Japan’s capacity to continue intervening. He noted that access to the facility is limited by the amount of U.S. Treasury securities that can be pledged as collateral.
Tsuyoshi Ueno, senior economist at NLI Research Institute, said the announcement of a joint intervention carries greater market impact than unilateral action by Japan because it demonstrates coordinated support from both governments.
However, he added that the underlying economic conditions responsible for the yen’s decline remain largely unchanged, suggesting the latest intervention may not lead to a sustained appreciation of the currency.
What Comes Next
Investors will now closely monitor upcoming decisions from the Bank of Japan, particularly its September policy meeting, for signals on interest rates and future monetary policy.
Markets will also watch whether Japanese and U.S. authorities carry out additional coordinated interventions if the yen comes under renewed pressure.
For now, the rare joint action has demonstrated a shared commitment by Tokyo and Washington to limit excessive currency volatility, but its lasting effectiveness will likely depend on future policy decisions and broader global economic conditions.
