The U.S. dollar has fallen sharply against the Japanese yen following a rare coordinated intervention by Washington and Tokyo, aimed at stemming the yen's rapid depreciation. As of Monday morning, the greenback was trading at 156.80 yen, a significant drop from the 40-year high of 164 yen recorded in July.
The intervention, first reported by the Financial Times, involved the U.S. Treasury Department selling euros to purchase yen on Friday. The move was executed through the Federal Reserve Bank of New York, with sales channeled via major financial institutions Goldman Sachs and Morgan Stanley, according to two sources familiar with the matter. The exact amount of euros used in the operation has not been disclosed.
Japanese Finance Minister Satsuki Katayama confirmed on Sunday that Tokyo also intervened in the market, buying yen to counter what she described as "excessive volatility" in recent months. This joint action marks a significant shift in U.S. policy, which has historically been reluctant to intervene in currency markets.
Treasury Secretary Scott Bessent took to social media on Sunday to underscore the administration's commitment. "Friday's coordinated foreign exchange actions countered disorderly yen movements. Treasury remains attentive and in close communication with our counterparts at MOF [Ministry of Finance] and BOJ [Bank of Japan]. We will not hesitate to participate in further joint intervention," Bessent wrote on X.
Bessent also highlighted the Foreign and International Monetary Authorities (FIMA) Repo Facility as an "important backstop." This facility, created during the COVID-19 pandemic, allows approved foreign central banks to temporarily swap U.S. Treasury securities held at the Federal Reserve Bank of New York for U.S. dollars. According to Reuters, countries can access up to $60 billion in dollar loans for up to seven days through this mechanism.
"We would encourage it to be upsized in the coming months. We strongly support Japan's decisive market and monetary steps to correct the substantial undervaluation of the yen," Bessent added.
The intervention comes amid broader economic pressures. Extreme currency swings are destabilizing global markets, which are already grappling with an energy crisis that has hit Japan and other Asian economies particularly hard. The ongoing conflict involving Iran has added further uncertainty, potentially threatening the stability of the yen-carry trade—an investment strategy where traders borrow yen at low interest rates to invest in higher-yielding assets. A sudden strengthening of the yen could trigger sharp market liquidations.
Japan remains the largest foreign holder of U.S. Treasury securities, according to the Congressional Budget Office. A continued sharp decline in the yen could push Tokyo to sell portions of its U.S. Treasury holdings to defend its currency. Such a move would directly push up U.S. bond yields, increase federal borrowing costs, and risk destabilizing the broader U.S. financial market.
The coordinated action signals a new level of cooperation between the Trump administration and Japanese authorities, with both sides signaling readiness to act again if necessary. Market analysts will be watching closely for any further statements from Bessent or the Bank of Japan in the coming days.
