How a US-Japan pact to hit yen speculators came together

TOKYO – A joint US-Japanese effort to fight off speculative bets against a battered yen last week followed months of preparation by the two nations and a rare and public alignment of interests in Washington and Tokyo over exchange rates.

While unilateral efforts by the Japanese authorities to stop sharp yen selling in the past have failed to provide a firm floor for the currency, US Treasury Secretary Scott Bessent’s verbal support for a stronger yen has given bureaucrats in Tokyo a new tool in their fight in 2026.

For Japan, a weak yen has fanned import prices, creating cost-of-living headaches for successive governments, including Prime Minister Sanae Takaichi’s.

For the US, a weak yen blunts the trade advantage from President Donald Trump’s flagship tariffs, while a related sell-off in Japanese government bonds could spill over to US Treasury yields.

The shared currency anxiety has not only forged increasingly cosy bilateral conversations about exchange rates, historically a diplomatically thorny topic for the two economic powers, but also added new pressure for the Bank of Japan (BOJ) to persist with rate hikes.

US participation in yen-buying intervention was considered as early as January, when the New York Federal Reserve made rare rate checks to help Tokyo combat yen declines, said a Japanese government official with knowledge of the preparations.

“Including online meetings, we’ve held talks about 10 times for discussions that included exchange rates,” Japanese Finance Minister Satsuki Katayama said on Aug 3, on how frequently she spoke with Bessent.

“When he visited Japan in May, we talked 3½ hours, including over dinner,” Katayama said upon announcing Japan’s joint currency intervention with the US.

The May talks followed Japan’s huge yen-buying intervention between late April and early May, which failed to reverse the yen’s downtrend.

In a sign negotiations were intensifying, Katayama said after the May meeting that the two have been “coordinating very closely on foreign exchange and will continue to do so.”

Bessent, too, said Japan’s fundamentals are “strong and resilient, and that will be reflected in the exchange rate”.

He also repeated his calls for faster BOJ interest rate increases, signalling Washington’s concern that its slow pace of hikes could leave the central bank behind the curve in addressing inflation.

A month later, the BOJ raised interest rates to a 31-year high of 1 per cent in a landmark step in policy normalisation. But with Japan’s real borrowing costs deeply negative, the move failed to give a lasting boost to the sagging currency.

The US Treasury was not reachable for comment outside office hours in Washington. Japan’s finance ministry did not comment.

Shift in tactics

With the yen hitting a four-decade low in 2026, Japan’s top currency diplomat Atsushi Mimura has shifted tactics.

Instead of a daily stream of calibrated verbal warnings against speculators, Mimura has focused on working behind the scenes with US counterparts, said two sources familiar with the preparations.

That means Mimura, who has sway over when to step in, has been less public and kept markets guessing about the chance of intervention. He kept a low profile even as Katayama and Bessent held an online meeting in late June to discuss financial market developments.

The need for action heightened in July, when concern over Takaichi’s expansionary fiscal and monetary stance drove the yen to recent lows, pushing up the cost of imports and hurting the administration’s approval ratings.

The US administration was also grappling with rising inflation and Treasury yields, heightening the incentive to support Tokyo’s effort to combat market headwinds.

Nodding to Japan’s concern over the weak yen, the US Treasury’s semi-annual currency report on July 24 echoed Tokyo’s warning against excessive yen volatility and pledged to continue “close consultations” with Japan on exchange rate matters.

Both the US Federal Reserve’s and BOJ’s policy meetings last week were seen as potentially vulnerable windows for the yen as investors positioned themselves based on cues from both banks about the timing of future rate hikes.

Japan’s intervention campaign was closely coordinated with the BOJ, according to people familiar with the matter.

Using a speakerphone connected with a handful of staff at the finance ministry’s foreign exchange division, Mimura gave the green light to buy yen for US dollars in the late evening on July 30.

The move, which hit investors outside Tokyo hours and amid the BOJ’s two-day policy meeting, immediately firmed the yen to 157.8 per US dollar from around 162.8.

When one of the staff told Mimura the yen was sliding back down towards 158, he said: “Yes. Let’s congregate tomorrow.”

Shortly after BOJ governor Kazuo Ueda’s news briefing concluded on July 31, the yen spiked in what markets suspect may have been another bout of yen-buying intervention by Tokyo.

This time, Tokyo was joined by Washington.

The US Treasury informed a number of banks that it might intervene in the yen market and that they should “stand ready for future action”, a source had told Reuters.

Bessent had a notepad at a July 31 cabinet meeting with the words “To Do”, followed by “Buy Japanese Yen (JPY) $5-10 bil”, a Reuters photo showed.

A September rate hike?

The BOJ’s communication on its future rate plans last week was its most hawkish to date and crucially nodded to a line in the US Treasury’s currency report that “monetary normalisation would help reduce excessive exchange rate volatility.”

Carefully reading off a prepared script, Ueda emphasised the vigilance needed “more than ever” against upside price risks, read by analysts as all but confirming a September rate hike.

Those sentiments also received praise in Washington.

“We strongly support Japan’s decisive market and monetary steps to correct the substantial undervaluation of the yen,” Bessent said in an X post on Aug 2, stressing anew his support for higher BOJ rates.

Mimura, too, said the government will align its currency policy with the BOJ’s monetary policy to address yen weakness, signalling the chance of a near-term rate hike.

In a separate X post, Bessent said he would meet Ueda at a US-hosted Group of 20 finance leaders’ meeting in end-August – which precedes the BOJ’s next policy meeting on Sept 17 and 18.

Markets now see the BOJ’s September meeting as live.

“Given Japan moved to prevent yen falls with the cooperation of the US, there’s a question of whether the BOJ can afford to forgo raising rates in September,” said Yuki Kimura, bond strategist at Okasan Securities.

Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, sees a September hike as a near-given.

“Intervention only has a temporary effect in slowing currency moves. Faster rate hikes are probably needed to put a lasting floor on the yen,” she said. “I feel like a September rate hike is a done deal. It won’t make sense for the BOJ to wait until October and cause another bout of yen declines.” REUTERS