The US Treasury sold euros, not dollars, to help prop up the Japanese yen last week. The European Central Bank only learned about the trade after it had already closed.
Christine Lagarde and Scott Bessent only spoke about the move a day later. However, by then, the New York Federal Reserve had already executed the sale for the US Treasury.
Why Washington Reached for Euros Instead of Dollars
Historically, Western central banks have relied on mutual consultation since World War II. They typically planned currency interventions together in advance.
Washington broke that pattern this time. In contrast, it notified the ECB only after completing the trade.
The choice of euros was deliberate, not accidental. Selling dollars might have signaled a retreat from Bessent’s strong-dollar policy, so the Treasury tapped its euro reserves instead.
Some analysts argue the yen carry trade rule no longer holds, adding pressure to defend the currency through other means. Bessent has since addressed the intervention directly in his own yen intervention explanation.
Meanwhile, economists have linked the move to concerns that Japan could sell US Treasuries in response.
Europe Reacts to Being Left Out
Senior ECB officials called the episode a break from decades of coordination. One person close to the discussions called the moment unprecedented.
A Treasury spokesperson defended the decision.
“Decisions regarding the allocation of the Exchange Stabilization Fund are made by the US Treasury, taking into account assessments by the Treasury and the Federal Reserve of market liquidity, valuations and other relevant considerations.”
However, a senior Trump administration official pushed back on the criticism. The official said Washington respects the confidentiality of talks with foreign counterparts and contrasted that approach with the ECB’s handling of the matter.
Market Fallout and What Comes Next
The intervention pushed the yen from roughly ¥164 to about ¥158 against the dollar. Japanese equities absorbed the shock with only modest losses.
Traders now price in a 44% chance the Bank of Japan raises rates in September. BoJ Governor Kazuo Ueda has flagged rising inflation risks as a reason for caution.
The episode leaves European policymakers wondering whether this was a one-off. It could also preview how the Trump administration handles currency defense with allies going forward.