US and Japan Conduct Rare Joint Intervention

The United States and Japan conducted their first coordinated intervention to support the weakening Japanese yen since 1998. This joint action caused the yen to surge over 3% against the dollar across two trading sessions last week.

Japan's Finance Ministry confirmed the intervention on Friday, signaling readiness for further actions if needed. According to Bank of Japan data, authorities may have spent up to $58.97 billion supporting the currency on Thursday alone. The joint action was carried out under the 'Joint Statement of the Japanese and U.S. Finance Ministers' issued in September 2025.

The intervention involved an unusual dynamic: the U.S. Treasury bought yen for euros rather than selling dollars, a move described by HSBC analysts as 'highly unusual — maybe unprecedented.' This approach likely reflects a desire to help Japan strengthen the yen without signaling a broader intention to weaken the dollar, which could complicate efforts to rein in above-target inflation in the U.S.

The coordinated effort has drawn mixed reactions from analysts. Some view it as a strong signal of support for Japan's currency, while others question its potential impact on market confidence in the yen and broader global economic stability. The remarks put the spotlight on the Bank of Japan (BOJ), which last week kept rates on hold but signaled scope for a rate hike as soon as its next policy meeting in September.

The intervention has lifted the yen to 157 to the dollar, down from just above 163, which represented its lowest level in four decades. However, analysts see little hope for a sustained rally in the battered currency as its fundamentals remain under scrutiny. The euro fell from as high as 187.4 yen on Thursday to dip briefly below 180 on Monday, an over 4% move.

The greenback's reaction on Monday has been modest, with ING markets head Chris Turner suggesting the dollar's resilience probably owes to the unresolved issue of whether the Federal Reserve will hike in September. The specter of higher interest rates means the potential for higher yields, which boosts international demand for Treasurys.

The U.S. bond market has long faced a threat that one of America’s biggest creditors, most likely China or Japan, might liquidate some of their enormous Treasuries holdings, driving up borrowing costs and triggering an economic and market crash. This historic joint U.S.-Japan currency intervention last week is a reminder that markets shouldn't get complacent.

The Bank of Japan policymakers debated mounting price risks that likely required more rate hikes even as they raised borrowing costs to a 31-year high in June, minutes of the meeting showed. A few board members said consumer inflation will likely get a significant boost in the latter half of the current fiscal year as firms plan price hikes for a wide range of goods.

The BOJ raised interest rates to a 31-year high of 1% at the June meeting, with rising fuel costs from the Middle East conflict adding to mounting inflationary pressures from a weak yen and tight job market. The minutes also showed two board members calling for faster interest rate hikes to push the BOJ's policy rate closer to levels deemed neutral to the economy.

The intervention has lifted the yen to 157 to the dollar, down from just above 163, which represented its lowest level in four decades. However, analysts see little hope for a sustained rally in the battered currency as its fundamentals remain under scrutiny. The euro fell from as high as 187.4 yen on Thursday to dip briefly below 180 on Monday, an over 4% move.

The greenback's reaction on Monday has been modest, with ING markets head Chris Turner suggesting the dollar's resilience probably owes to the unresolved issue of whether the Federal Reserve will hike in September. The specter of higher interest rates means the potential for higher yields, which boosts international demand for Treasurys.