This sprawling intervention, an epic event in currency markets, was inadvertently exposed by a small "to-do" note. On July 31, during a Trump cabinet meeting, journalists captured a photo of US Treasury Secretary Scott Bessent's desk, which prominently listed an item: "Buy JPY, 50-100 billion USD." Hours later, the New York Federal Reserve Bank, acting on behalf of the US Treasury, executed operations to sell euros and buy Japanese yen through Goldman Sachs and Morgan Stanley. On August 3, the US and Japanese Treasuries jointly confirmed that both nations had coordinated a yen-buying intervention on July 31 (US Eastern Time). This marked the first joint yen-buying operation by the US and Japan in 28 years, since the 1998 Asian financial crisis, and the first form of coordinated intervention in 15 years, following the 2011 Great East Japan Earthquake. The yen's exchange rate soared from 162.80 to 157.80 in just 50 minutes, appreciating by about 5 yen. Thus began a currency war driven by the deep ties of US Treasuries.
This intervention was not a solo act by Japan. The US Treasury entered the market directly on July 31 through the New York Fed, selling euros and buying yen. This was the first time the US had directly bought yen since 2011 and the first joint effort with Japan to directly support the yen in nearly 30 years. Simultaneously, South Korea also made a rare move to sell dollars, pushing the won to a nine-month high. A three-nation currency defense involving the US, Japan, and South Korea was taking shape.
Full Scope of the Intervention: A 50-Minute, 500-Pip Surge and a $52.8 Billion "Blitz"
On July 30, during New York trading hours, the yen's exchange rate against the US dollar had fallen to near the 164 mark—a nearly 40-year low since 1986. Starting at 9:30 AM (9:30 PM Beijing time on July 30), the yen began a sharp rally. Within just 50 minutes, the rate surged from around 162.80 yen to 157.80 yen, appreciating by about 5 yen, with a daily gain of over 3%. According to Bank of Japan account data and currency broker forecasts, the scale of intervention on July 30 alone was a massive 8.45 trillion yen (approximately $52.8 billion)—likely the largest single-day foreign exchange intervention in Japan's history. Data from the Chicago Mercantile Exchange shows that yen trading volume that day soared to its highest level in nearly 12 years.
US Motives: Protecting the Yen, but More Importantly, Shielding US Treasuries
The most striking aspect of this intervention was not Japan's renewed action, but the US's upgrade from "verbal support" to "real money." Why did the US step in? The answer lies behind Bessent's "to-do" list. Japan is the largest foreign holder of US Treasuries, with holdings exceeding $1.1 trillion. If the yen continued to depreciate disorderly, Japanese authorities, to raise funds for intervention, would be forced to sell large amounts of US Treasuries for dollars. This would directly push up long-term US Treasury yields, which were already elevated—the 10-year yield has risen nearly 57 basis points this year. Louise Loo, head of Asian economics at Oxford Economics, pointed out that this might be a "key reason" behind US participation. "There is an element of self-preservation. Japan's potentially aggressive fiscal policy could lead to market volatility, which would then spill over into the US Treasury market, thereby shaking the stability of the dollar." Therefore, the logic of US participation in the joint intervention is clear and cold: it is better to proactively sell euros and buy yen, stabilizing the yen and preserving the US Treasury market, than to allow Japan's forced sale of Treasuries, which would push up US interest rates. If Japan were forced to sell Treasuries on a large scale to raise dollars for unilateral intervention, it would directly push up long-term US yields, impacting US fiscal and financial stability. Furthermore, the timing of the US-Japan joint intervention was also telling—just after the Federal Reserve maintained interest rates and Chairman Warsh's speech was interpreted as dovish. Economists at TS Lombard noted that the Fed's dovish stance created a favorable window for Japan's Ministry of Finance to intervene. At the same time, the US hoped to provide liquidity support for the stock market by weakening the dollar, aligning policy goals with Japan's aim to boost the yen. Nobuyasu Atago, chief economist at Rakuten Securities and a former Bank of Japan official, remarked, "I can't help but feel that they are not just considering coordination on exchange rates, but also a tacit understanding on monetary policy."
FIMA Repo Facility: Creating Dollars Without Selling Treasuries
To completely dispel market concerns about Japan selling Treasuries, the US and Japan also played a key card. In its statement on August 3, Japan's Ministry of Finance explicitly stated that it would use the Federal Reserve's "Foreign and International Monetary Authorities Repo Facility" (FIMA Repo Facility) in the future. This tool allows foreign central banks to obtain dollar liquidity by temporarily pledging US Treasuries, without having to sell bonds directly in the open market. Masahiko Loo, senior macro strategist at State Street, said this signal "might be more important than the intervention itself." "Emphasizing the availability of the FIMA repo facility signals to the market that Japan can increase dollar liquidity without selling government bonds... This removes fears that the Treasury's intervention might pressure US financing markets through short-term Treasury sales." However, Takeshi Ueno, chief economist at the NLI Research Institute, also issued a warning: FIMA is essentially dollar borrowing that must be repaid in the future. Even without directly selling Treasuries, heavy use of this tool could force the US to issue more bonds, ultimately altering the supply-demand dynamic in the Treasury market.
Market Reaction: The 156 Level Recovered, Shorts "Squeezed"
The intervention's effect was immediate. As of August 3 in Asian trading, the dollar-yen rate had fallen below the 157 mark, briefly entering the 156 range—the first time it had returned to this level in about three months since early May. Both sides then engaged in a barrage of "expectation management": Trump stated on Air Force One on August 2, "Japan is in deep trouble with yen depreciation, and they want a little help." He added, "Putting aside the Pearl Harbor attack, Japan has been very friendly to the US for a long time." Bessent posted on social media on the evening of August 2, "The US-Japan coordinated foreign exchange intervention effectively curbed the disorderly volatility of the yen exchange rate," and said, "We will not hesitate to participate in further joint interventions." Japan's Finance Minister Katsuyuki Sagayama confirmed the joint intervention on August 3, stating, "We will not hesitate to take further joint action on intervention in the future." Japan's Ministry of Finance clarified that the intervention was conducted "in accordance with the September 2025 US-Japan Finance Ministers' Joint Statement," aimed at addressing "recent excessive volatility and disorderly movements of the yen."
Limitations of Intervention: Interest Rate Gap Unchanged, Trend Hard to Reverse
However, historical experience shows that foreign exchange intervention often only changes the pace, not the trend. This action was Japan's second major round of intervention in 2026. The first round occurred from April 28 to May 27, with a cumulative scale of 11.73 trillion yen (about $73.2 billion). The intervention's effect lasted only about a month before the yen fell back to its pre-intervention lows. The fundamental issue is the US-Japan interest rate gap—the US federal funds rate is 3.50% to 3.75%, while Japan's policy rate is only 1%, keeping the spread at 250 to 275 basis points. Xiayi Chen, global investment strategist at the Franklin Templeton Institute, noted, "Repeated interventions might buy time, but each round faces the same limitation: Japanese authorities want a stronger yen but are unwilling to fully bear the policy costs needed to achieve that goal." Robin Brooks, a senior fellow at the Brookings Institution, said bluntly, "As long as Japanese government bond yields are artificially constrained, the yen is overvalued and needs to fall." He argued that intervention cannot solve the root problem. Secondly, the structural impact of the Middle East conflict on Japan's economy persists. Japan relies on the Middle East for 70% of its oil imports. As long as the shipping disruption in the Strait of Hormuz continues, high energy prices will continue to erode Japan's trade balance. Additionally, Japan's fiscal and industrial structural challenges remain unchanged. Long-term issues like an aging population, industrial hollowing out, and a lack of innovation dynamism mean there is no fundamental driver for a sustained yen appreciation. More worrying is that the intervention itself has "side effects." Robin Brooks, a senior fellow at the Peterson Institute for International Economics, warned, "Coordinated US-Japan intervention could ultimately weaken rather than strengthen confidence in the yen." In the long term, the yen's fate depends on three variables: whether the Bank of Japan can raise interest rates again this year (markets expect the earliest in October), whether the Middle East conflict can ease to lower energy import costs, and whether the path of US interest rates will shift.
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