The US Treasury bought yen directly on Friday, joining Tokyo in an outright currency intervention for the first time in nearly 30 years. The move followed the Bank of Japan holding rates at 1% while flagging further hikes, as the yen recovered from a 40-year low near ¥164 to the dollar.
The Federal Reserve Bank of New York sold euros to buy yen on Friday on behalf of the Treasury, according to three people familiar with the matter. The move marked the first time Washington and Tokyo have joined forces on outright yen purchases in nearly 30 years. The trades ran through Goldman Sachs and Morgan Stanley.
Treasury moved through Wall Street banks
Earlier on Friday, the Treasury had told several Wall Street banks it was considering an intervention to support the yen, which on July 23 hit its weakest level against the dollar since 1986. A Reuters photo of Treasury Secretary Scott Bessent's notepad at a Camp David cabinet meeting showed a note to buy $5 billion to $10 billion of Japanese yen. The dollar then shed 1.9% on Friday to buy ¥157.57.
BoJ holds rates, flags future hikes
The intervention came after the Bank of Japan held interest rates at 1% on Friday, as widely expected. Governor Kazuo Ueda said the central bank would guard against falling behind on future rate rises. He also said policymakers now have a greater need to pay attention to upside risks to inflation as it nears the BoJ's 2% target. Traders now price a roughly 40% chance of a quarter-point rate rise in September, up from 30% earlier in the week.
Washington and Tokyo signal coordination
Bessent posted on X that he looked forward to seeing Ueda at the G20 finance ministers' meeting in North Carolina in August, adding that the two countries "continue to enjoy a strong relationship and close co-ordination." Atsushi Mimura, Japan's vice-minister of finance for international affairs, said Tokyo has been in constant contact with US authorities and is receiving support that goes beyond moral backing. Japan and the US may also unveil a joint policy as early as next week to address the yen's weakness, Kyodo News reported, aimed at warning off speculative bets against the currency.
Traders test the resolve
Citigroup strategist Osamu Takashima said a return to ¥164 looks unlikely in the very near term now that the US appears willing to help defend the yen. He added dollar-yen upside is probably limited for now. Others said intervention alone will struggle to hold the yen without higher interest rate expectations, especially as the Fed is expected to raise rates in the coming months. One banker in Asia said clients were already testing the government's commitment, putting on yen short positions targeting around ¥162.
Sources: Financial Times, CNBC
Trading involves risk.
Risk Disclaimer
