The United States and Japan just pulled off their first coordinated yen-buying intervention since 1998. The yen briefly strengthened. Then it started sliding again.
On July 30-31, Japan’s Ministry of Finance and the US Treasury stepped in to halt the yen’s freefall after it touched a 40-year low near 164 per dollar. Japan’s share of the operation alone is estimated between $59 billion and $85 billion.
The intervention playbook
Japan bought yen in massive quantities while the US Treasury sold euros to purchase yen. Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent both publicly confirmed the operation, with President Donald Trump also acknowledging US participation.
The yen appreciated to roughly 155 per dollar following the intervention. By mid-August, the yen had drifted back to the 158-160 range.
Why the yen keeps falling
The Federal Reserve has kept rates elevated while the Bank of Japan has maintained its historically low rate policy. That differential makes the carry trade—borrowing in cheap yen to invest in higher-yielding dollar assets—profitable for global investors.
Japan’s energy import bill has swelled amid Middle East geopolitical tensions, and Japan imports nearly all of its oil and natural gas. Every barrel of crude purchased abroad means more yen flowing out of the country, adding persistent downward pressure on the currency.
Historical echoes and what comes next
The last time Washington and Tokyo jointly intervened to support the yen was 1998, during the Asian financial crisis. Both Katayama and Bessent signaled their willingness to intervene again if conditions deteriorate further.
The Bank of Japan could raise interest rates, narrowing the differential with the US and making carry trades less attractive. Governor Kazuo Ueda has been cautious about tightening, but persistent yen weakness may eventually force the central bank’s hand.
The US motivation for participating in the intervention extended beyond bilateral alliance management. Treasury officials expressed concern that a disorderly yen collapse could spill over into US Treasury markets and global funding conditions.