Japan and US confirm joint yen-buying intervention, signal more action

[TOKYO] Japan and the US conducted coordinated yen-buying intervention and will not hesitate to take further action, Japan’s finance ministry said on Monday (Aug 3), confirming a rare bilateral action to halt the yen’s slide to fresh 40-year lows.

The move underscored both countries’ resolve to prevent a sell-off in the yen and Japanese government bonds (JGB) from causing global spillovers, such as adding upward pressure on already rising US Treasury yields, analysts say.

The joint intervention is the first since 2011’s coordinated action to weaken the yen after the devastating earthquake in eastern Japan.

US President Donald Trump said on Sunday the US is helping Japan to prop up the yen as a sign of friendship and to help the world economy.

Aside from helping Japan as a strategic ally in Asia, the intervention would help the US address concerns over extraordinary weakness in the yen that offsets the boost from Trump’s tariffs, analysts say.

In a statement, Japan’s finance ministry (MOF) said Friday’s yen-buying intervention with the U.S. Treasury Department “countered excessive volatility and disorderly movements in the Japanese yen in recent months”.

“We will not hesitate conducting further coordinated intervention,” Finance Minister Satsuki Katayama told reporters on Monday.

Katayama declined to comment when reporters asked whether the authorities stepped in on Monday.

The yen surged more than 1 per cent to 155.20 per US dollar after the announcement, its strongest since early May and well off the 40-year low near 164 hit in July, as traders remained on alert for more intervention.

SEE ALSO

Yen climbs as traders watch for further US-Japan forex intervention

Tokyo to announce Japan-US joint action to support yen, say sources, in first such move since 2011

With higher-than-usual FX volatility, how do investors manage currency risk in portfolios?

Japan records leap in currency-driven bankruptcies triggered by yen weakness

More

The yen rose as much as 1 per cent against the Singapore dollar in early Aug 3 trading. It was up more than 0.7 per cent at 122.06 per Singapore dollar at 2.03 pm Singapore time. At that level, the yen had strengthened about 3.6 per cent from its pre-intervention level against the Singapore dollar on Jul 30.

BOJ in spotlight

“The joint intervention is the culmination of Japan’s alliance with the United States,” Japan’s top currency diplomat Atsushi Mimura told reporters on Monday.

“We will continue to align (currency policy) with the Bank of Japan’s monetary policy,” he said, suggesting the government will work hand in hand with the central bank in arresting yen falls.

US Treasury Secretary Scott Bessent also confirmed Friday’s effort, adding Washington “will not hesitate to participate in further joint intervention.”

“We strongly support Japan’s decisive market and monetary steps to correct the substantial undervaluation of the yen,” Bessent said in a separate statement on X, repeating his calls for further interest rate hikes by the Bank of Japan.

The remarks put the spotlight on the BOJ, which on Jul 31 kept rates on hold but signalled scope for a rate hike as soon as its next policy meeting in September.

“The comments by Mimura and Bessent must be music to the ears of hawks within the BOJ,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.

“I feel like a September rate hike is a done deal. It won’t make sense for the BOJ to wait until October and cause another bout of yen declines.”

The two-year JGB yield, which is most sensitive to near-term monetary policy moves, briefly hit 1.545 per cent on Monday, the highest since 1995, as markets priced in the chance of an early rate hike.

US Fed facility available

Japan has been struggling to curb a relentless drop in the yen that pushes up import prices and stokes broader inflation, hitting households’ wallets and Prime Minister Sanae Takaichi’s public approval ratings.

Tokyo’s solo intervention conducted between late April and early May caused only a brief yen rebound. The BOJ’s June rate hike to a 31-year high of 1 per cent also gave the struggling currency little lasting boost.

Before Friday’s confirmed joint intervention with the US, Japan may have sold as much as US$58.97 billion to buy yen when it intervened in New York markets on Thursday, BOJ data suggested.

In a sign of further Japan-US coordination, Bessent said the US would consider increasing in coming months the size of the US Federal Reserve’s repurchase facility providing temporary US dollar liquidity, calling the tool an “important backstop”.

The comment came after the MOF’s rare X post on Saturday that it had “a broad range of tools to address market liquidity needs,” including access to the US Fed’s repurchase facility providing temporary US dollar liquidity.

The US Fed facility, introduced in 2020 to steady markets during the Covid-19 pandemic, allows Japan to raise US dollar liquidity without outright sales of US Treasuries, potentially easing funding pressures on Tokyo for intervention.

Some analysts doubt whether the latest round of action could counter structural factors driving down the yen, such as the rising cost of fuel from the Middle East conflict and the still wide Japan-US interest rate differentials.

“The announcement effect of joint intervention is much bigger than solo action by Japan,” though the yen fell after the announcement as it was largely within expectations, said Tsuyoshi Ueno, a senior economist at NLI Research Institute.

“The fundamentals driving yen weakness haven’t changed, so we likely won’t see one-sided yen rises from this intervention.” REUTERS