The United States has joined Japan in buying yen, turning Tokyo’s currency defense into a coordinated effort to stop a disorderly decline from spreading through global trade, inflation and bond markets.

The U.S. Treasury instructed the Federal Reserve Bank of New York to purchase yen by selling euros, according to reports citing people familiar with the transaction. Japan is expected to formally announce the joint intervention, which would mark the first coordinated U.S.-Japanese operation supporting the yen since 2011. 

Washington has not disclosed the amount purchased. A Reuters photograph taken during a Cabinet meeting Friday showed Treasury Secretary Scott Bessent’s handwritten task list containing the instruction “Buy Japanese Yen” followed by a proposed range of $5 billion to $10 billion. Treasury declined to comment on the note. 

The method matters. By selling euros rather than dollars, Washington could support the yen without directly weakening the dollar or adding further pressure to U.S. inflation. The intervention was reportedly executed through Goldman Sachs and Morgan Stanley on behalf of the New York Fed.

Japan appears to have committed far more. Bank of Japan money-market data indicated that Japanese authorities may have spent as much as 8.2 trillion yen, approximately $59 billion, purchasing their currency after it fell toward four-decade lows. 

Currency intervention is usually temporary unless monetary policy moves in the same direction. Japan’s interest rate remains far below comparable U.S. rates, encouraging investors to borrow cheaply in yen and move the money into higher-yielding dollar assets.

That trade has weakened the yen and made imported oil, food and raw materials more expensive for Japanese households and businesses. The Iran-driven energy shock intensified the pressure because Japan imports most of the fuel needed to run its economy.

Washington’s participation signals that the consequences are no longer confined to Japan. A rapid yen decline can give Japanese manufacturers a large pricing advantage, distort trade flows and expose investors who have borrowed in yen to sudden losses if the currency rebounds.

Global bond markets face another risk. Japanese banks, insurers and pension funds are major owners of U.S. Treasurys. If higher Japanese rates or a stronger yen encourage them to bring money home, demand for American government debt could weaken and U.S. borrowing costs could rise.

Tokyo has explored using the Federal Reserve’s foreign-monetary-authority repurchase facility to obtain dollars without selling its Treasury holdings. That would allow Japan to finance additional intervention while reducing the danger of triggering a broader selloff in U.S. bonds.

The coordinated action also represents a departure from the longstanding preference of major governments to allow exchange rates to be set by markets. The U.S. and Japan reaffirmed last year that intervention should be reserved for excessive volatility or disorderly movements rather than used to create a trade advantage. 

Japan’s Finance Ministry controls intervention policy, while the Bank of Japan executes the trades. In the United States, Treasury directs currency operations through the Exchange Stabilization Fund, with the New York Fed acting as its market agent.

A purchase of $5 billion to $10 billion would be small compared with the trillions traded daily in global foreign-exchange markets. Its significance comes from the message that both governments are prepared to act together and potentially return with larger purchases.

Traders will now test whether that commitment is strong enough to establish a floor under the yen. Without faster Japanese interest-rate increases or lower U.S. rates, intervention alone may slow the decline without reversing the economic forces behind it.

The next signal will come from Japan’s formal disclosure and any confirmation from the U.S. Treasury. Those statements will determine whether Friday’s transactions were a limited warning to currency markets or the beginning of a sustained campaign to prevent the yen’s weakness from becoming a wider financial threat.

JBizNews Desk | Washington and Tokyo

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