Japan's Finance Ministry confirmed the implementation of a large-scale foreign exchange market intervention operation with the US Treasury last Friday. The rare drastic step is aimed at curbing sharp fluctuations in the Yen currency, which had previously fallen to a four-decade low of around 163.73 against the US Dollar.
Following the intervention, the Yen rebounded to 157.57 against the US Dollar. Japanese Finance Minister Satsuki Katayama stressed that Tokyo would not hesitate to launch a series of follow-up interventions with Washington if currency volatility continues. To support Dollar liquidity, Japan also plans to use the Federal Reserve's FIMA repo facility.
US Treasury Secretary Scott Bessent confirmed Washington's involvement and expressed full support for Japan's firm action to correct the undervalued Yen. President Donald Trump also described the US involvement in this market operation as a signal of friendship and support for global economic stability.
However, the US's decision to sell Euro reserves instead of Dollars to buy Yen has raised questions among market players. This extraordinary financing method was implemented to prevent Japanese authorities from having to sell their US Treasury Bond holdings.
Brookings Institution economist Robin Brooks warned that this unique financing strategy risks reducing the efficiency of the intervention. Market doubts about the US's rationale for choosing Euro reserves are expected to undermine investor confidence in the prospects for a long-term strengthening of the Yen
