The Japanese yen rallied sharply on Friday, gaining over 1% against both the US dollar and the euro, as authorities from the United States and Japan took coordinated action to support the currency. Sources indicated that Japanese officials stepped in during the New York trading session to sell US dollars and buy yen, following a similar intervention the previous day.
Earlier reports suggested that the Bank of Japan and the Japanese government had conducted yen-buying operations for a second consecutive day. Additionally, news emerged that the Federal Reserve Bank of New York, acting on behalf of the US Treasury, sold euros and purchased yen. This marks the first joint intervention by the two nations in nearly 30 years, aimed at bolstering the yen. The US Treasury has not yet responded to the reports, and Japanese finance ministry officials have declined to comment.
Two sources revealed that the New York Fed contacted at least two major US banks during the day to request quotes for the euro against the yen. In a striking development, a photograph taken during a cabinet meeting at Camp David showed US Treasury Secretary Scott Bessent's notepad, which listed a "to-do" item: "Buy 5-10 billion yen." The image, captured during the portion of the meeting open to the press at 11:33 am ET, showed Bessent's nameplate placed directly above the notepad. This series of actions underscores a coordinated effort by both countries to counter the yen's depreciation, which recently hit lows not seen since 1986. Factors such as rising oil prices, Japan's persistent fiscal deficit, and the significant interest rate gap between Japan and major economies like the US have been exerting downward pressure on the currency.
"Traders will be on alert for further intervention from the authorities," said Alex Loo, a Singapore-based economist at TD Securities. On Thursday, Japan initiated its first round of intervention, which briefly pushed the yen up by as much as 3.3%. Based on Bank of Japan account data and estimates from money brokers, the scale of that intervention is calculated to be around 8.45 trillion yen, equivalent to approximately $52.8 billion. This likely represents the largest single-day currency intervention in Japan's history. Data from the CME Group showed that Thursday's massive buying spree drove yen trading volumes to their highest in nearly 12 years. On the final trading day of the week, the yen remained volatile, closing up about 1.3% against the dollar, near its intraday high of 157.28.
In a social media post, Treasury Secretary Bessent stated that US-Japan relations are "strong, with close communication and coordination," fueling further speculation that additional intervention measures may be on the horizon. Earlier, on Fox Business, Bessent had described the yen as "significantly undervalued," noting that sharp and disorderly exchange rate movements are detrimental to the market.
Regarding the effectiveness of the intervention, the Bank of Japan maintained its interest rate at its Friday meeting, a decision that aligned with the expectations of most economists. Governor Kazuo Ueda did not offer any strong pro-yen signals during the subsequent press conference, only hinting at the possibility of a rate hike at a future meeting without providing a clear timeline. This has led to questions about whether currency intervention can achieve lasting results. "In the absence of a fundamental interest rate differential, the effects of foreign exchange intervention are typically short-lived," wrote Evercore ISI strategists Marco Casiraghi and Lu Gang in a note on Friday. "While the central bank acknowledges that currency fluctuations pose risks to inflation, it remains reluctant to actively tighten policy to support the yen."
Analysts at Goldman Sachs, led by Michael Cahill and Lexi Kanter, believe that while intervention cannot fundamentally resolve the yen's weakness, it can be effective in the short term. Their report noted that Japan holds ample foreign exchange reserves to sustain intervention operations for a period. "The core question is whether the dollar-yen pair can remain below the 160 level without continuing to rise," said Jane Foley, head of FX strategy at Rabobank, in an interview on Friday. "Market sentiment is currently highly tense."
Data from the Commodity Futures Trading Commission on Friday revealed that hedge funds had been increasing their short positions on the yen before this week's interventions. As of July 28, hedge funds held short yen contracts worth $9.5 billion, totaling 124,575 contracts, just slightly below the highest short position since 2007, which was set in June.
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