The yen-dollar exchange rate against the U.S. dollar fell into the 150s with U.S.-Japan coordination but is returning to the 160s after two weeks. As of 3:30 p.m. on the 12th, the yen-dollar rate was 159.4 yen, approaching the level before the market intervention (162.4 yen).
Experts said that unless currency policy such as a benchmark rate hike accompanies it or fiscal policy that piles up massive liability changes, it is hard to shift the trend with intervention alone. In the past, intervention effects appeared when policy changes accompanied it.
◇ Despite the largest-ever intervention, the rate rebounded in a week
U.S. and Japanese authorities injected an estimated 13.7 trillion yen on the 30th of last month to lift the yen's value. When Japan sells its holdings of U.S. Government Bonds to intervene in the market, bond prices fall, so the two countries joined hands. It was the first time since 1998 that the United States coordinated with Japan to curb yen weakness. The United States also used different intervention methods, such as selling euros instead of dollars.
Scott Bessent, the U.S. Treasury secretary, effectively disclosed his memo noting "JPY $5–$10 billion purchase," sending a strong message to the market. Japanese authorities are also taking a hard-line stance, saying they can make additional interventions by borrowing dollars using their U.S. Government Bonds as collateral (using FIMA repos) if necessary. Foreign exchange market participants expect additional official intervention if the rise in the rate accelerates.
But the effect is being assessed as limited. On the day of the intervention, the rate was 159.4 yen, down 2.36% from the previous trading day. The next day it fell 1.33% to 157.1 yen, and that level continued through the 3rd. But it began rising on the 4th, and on the 10th it broke back above 159 dollars, showing an uptrend.
◇ In the past, simple intervention alone also had limits
Some say a sustained strengthening of the yen requires Japan's benchmark rate hikes and changes in fiscal policy. Even with U.S. support, deploying foreign exchange reserves alone makes it hard to change the flow. The dominant view is that the Central Bank of Japan will raise the benchmark rate as early as September, or by October at the latest.
There are also claims that Japan should first resolve the massive fiscal deficit, the fundamental cause of yen weakness. Park Sang-hyun, a researcher at iM Securities, said, "Given Japan's fragile fiscal soundness and the still-wide U.S.-Japan interest rate gap, there may be limits to the yen turning strong immediately," and added, "If there is a change in the Japanese government's fiscal policy, or if it becomes clear the United States cannot raise rates further, it could change."
A similar pattern appeared in the past. July 2024 is a representative case. Japanese authorities injected 5.5356 trillion yen over two days, July 11–12. In terms of size alone, that was less than half of the recent U.S.-Japan coordinated intervention. But the monthly average rate fell to 158.1 yen in July, 146.2 yen in August, and 143.6 yen in September. It rebounded to 150 yen in October and climbed to 156.8 yen the following January, but it remained below the pre-intervention level.
At the time, Japan had just begun to change currency policy. The Central Bank of Japan ended the negative rate (-0.1%) in March 2024 and raised the benchmark rate to 0.25% in July. It raised again in January 2025 to 0.5%. As a result, a large-scale unwinding of yen carry trades (borrowing yen cheaply to invest in higher-yielding U.S. assets) occurred, pushing the yen stronger.
By contrast, the intervention in May this year had little effect. Japanese authorities injected a then-record 11.7348 trillion yen into the market over three rounds on Apr. 30 and May 4 and 6. On the first intervention day, the rate closed at 156.6 yen, down 2.3% from the previous transaction day's close of 160.3 yen. But by May 19, two weeks after the intervention, the rate broke above 159 yen, and on June 3 it surpassed 160 yen. Within a month, it had returned to the pre-intervention level.