Japan to announce Tokyo, Washington took joint action on yen, sources say

TOKYO – Japanese Finance Minister Satsuki Katayama will announce on Aug 3 that Tokyo and Washington took joint action in the currency market to arrest the yen’s slide to 40-year lows, two Japanese government officials told Reuters.

Katayama is likely to stress the two countries’ determination to combat what they consider excessive yen declines, said the sources familiar with the matter, on condition of anonymity due to the sensitivity of the matter.

One source, asked if Katayama would announce “joint action”, said yes, adding that “the operation is still ongoing”.

The Ministry of Finance (MOF) could not immediately be reached for comment on Aug 2. US Treasury officials did not immediately respond to requests for comment.

First joint yen intervention in 15 years

The expected announcement follows what market sources say were rounds of yen-buying in the market by the Japanese and US authorities, the first such joint intervention since 2011, seeking to boost the Japanese currency from its lowest levels against the dollar since 1986.

The Japanese government bought yen for dollars in New York trading hours on July 30, a market source told Reuters, with Bank of Japan (BOJ) data suggesting it sold as much as US$58.97 billion (S$75.6 billion) to support the yen.

Tokyo’s initial intervention came hours before the BOJ decided on July 31 to keep monetary policy steady while signalling a strong chance it would raise interest rates soon.

A widening rate differential with the US, where the Federal Reserve has dramatically shifted to a more hawkish stance, has been a key factor in the dollar’s rise against the yen.

Shortly after BOJ governor Kazuo Ueda held a press conference on the central bank’s decision, the yen spiked in what markets suspect may have been another bout of yen-buying intervention by Tokyo.

“Going forward, as the official responsible for currency policy, I would like to respond in close coordination with monetary policy,” Katayama’s top currency diplomat, Atsushi Mimura, told reporters after the yen’s spike on July 31, suggesting the MOF and BOJ were working hand in hand to combat the weak yen.

Also on July 31, 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 familiar with the matter said.

US Treasury Secretary Scott Bessent, who said recently that the yen “seems very undervalued to ​me”, had a notepad at a Cabinet meeting on July 31 with the words “To do”, followed by “Buy Japanese yen (JPY) US$5-10 billion”, a Reuters photo showed.

Concern over rising US bond yields

In another sign of bilateral coordination, the MOF made a rare post in English on social media platform X that it had “a broad range of tools to address market liquidity needs”, including access to the Fed’s repurchase facility providing temporary dollar liquidity.

The Fed facility, introduced in 2020 to steady markets during the Covid-19 pandemic, allows Japan to raise dollar liquidity without outright sales of US Treasuries, potentially easing funding pressures on Tokyo for intervention.

Critics have said Japan could face constraints to continued yen-buying intervention, as selling down its huge Treasury holdings to fund such action could trigger a sell-off in US debt and cause an unwelcome spike in US yields.

Some analysts saw the signs of Japan-US cooperation as driven by Washington’s concern over rising Treasury yields, which could worsen if Tokyo failed to prevent a sell-off in the yen and Japanese government bonds (JGB).

“Both the US and Japan face risks of inflation turning hot and leaving their central banks behind the curve,” said former BOJ official Nobuyasu Atago. “They see merits in cooperating.”

Highlighting Japan’s concern over rising JGB yields, Economy Minister Minoru Kiuchi said on Aug 2 the government will step up efforts to enhance communication with markets.

“It’s very important to maintain market trust in Japan’s fiscal sustainability,” Kiuchi, known as a fan of expansionary fiscal and monetary policy, said at a television talk programme. REUTERS