The U.S. and Japanese governments jointly intervened in the foreign exchange market to defend the plunging value of the yen.
Foreign exchange market intervention is an extreme measure in which a government injects massive funds to artificially adjust exchange rates. When a country's currency value falls, it usually helps exports, but import prices surge and deal a fatal blow to consumer prices.
With the yen's value falling to a 40-year low and anxiety spreading across the Japanese economy, the two countries directly sold dollars and bought yen for the first time since 2011. The impact is expected to be significant, given that the United States, as an issuer of a key currency, joined in defending Japan's currency even at the cost of lowering its own.
According to a compilation of major outlet reports including Reuters on the 2nd, Japan Minister of Finance Katayama Satsuki is set to officially announce on the 3rd that the United States and Japan took joint action in the foreign exchange market. Two Japanese government officials, speaking on condition of anonymity, confirmed this and said Minister Katayama will emphasize the two governments' strong resolve to counter the excessive decline in the yen's value. Asked about the joint action, one official acknowledged it and said, "The operation is still underway."
The joint intervention aims to lift the yen, which has plunged to its lowest level against the dollar since 1986. It is the first time in 15 years since 2011 that the two countries have joined hands.
Ahead of the joint announcement, the Japanese government was already active in the market. On the 30th of last month, during New York foreign exchange market transaction hours, it carried out a solo market intervention by heavily selling dollars and buying yen. As the exchange rate defense line crumbled, it appears to have rushed to douse the flames. The Bank of Japan, which sets currency policy independently, moved with the government. At the Monetary Policy Meeting on the 31st of last month, the Bank of Japan chose to hold the benchmark rate rather than raise it, but sent a strong signal to the market that an early rate hike is likely in the near term. When interest rates rise, the value of a country's currency tends to increase. By leaving the door open to a rate hike, the Bank of Japan appears to be pursuing policy coordination to maximize the impact of the foreign exchange market intervention.
The U.S. Treasury is also aligning with Japan's policy. U.S. Treasury Secretary Scott Bessent last week said the yen's exchange rate level is deeply undervalued. Momentum for a joint intervention grew after a notepad Bessent held at a cabinet meeting on the 31st of last month was captured by the media. On the notepad, in Bessent's handwriting, a to-do item read, "Buy Japanese yen in the amount of $5 billion–$10 billion." On the same day, the U.S. Treasury in fact contacted several major banks to formally notify them of a possible foreign exchange market intervention.
A source familiar with the matter said the U.S. Treasury instructed banks to "prepare for upcoming measures." With the United States, an issuer of a key currency, signaling a show of force by directly supplying dollars and buying yen, the foreign exchange market is expected to see enormous waves for the time being.