US and Japan's Joint Intervention Triggers Sharp Yen Rally
The United States and Japan have coordinated to trigger one of the most significant rebounds in the yen in years, following a prolonged period of depreciation. The yen's relentless decline has fueled inflation in Japan and sent ripples through global markets. At the New York close on Friday, the yen traded at 157.40 against the US dollar, its highest level since early May. Just two days earlier, the yen was hovering near its lowest point since 1986, a situation that raised alarm bells in Tokyo as rising import costs weighed on businesses and consumers.
Multiple Factors Propel the Yen Surge
The sharp yen rally was driven by a combination of factors, including direct yen purchases, calls from officials to banks trading the currency, and statements from US Treasury Secretary Scott Bessent and Japanese Finance Minister Katsuyuki Katayama. Bessent noted that the yen is too weak, drawing on his deep understanding of Japan's role in global markets from his hedge fund career. While direct market intervention and verbal support have triggered rallies before, which typically faded within days or weeks, the current level of coordination between the US and Japan appears to be the closest in decades, raising the stakes for yen short sellers.
Michiyoshi Kato, a senior advisor at the currency and interest rate client team of Sumitomo Mitsui Trust Bank in Tokyo, stated that the market has underestimated the authorities. The difficulty for speculators to sell the yen may have already increased. If there is further intervention, the dollar-yen exchange rate could break below 155 yen. According to a person familiar with the matter, Japanese authorities bought yen and sold dollars during the New York trading session on Friday. The Bank of Japan and the Japanese government intervened in the yen exchange rate for the second consecutive day, with the New York Federal Reserve Bank selling euros and buying yen on behalf of the US Treasury.
Bessent's Influence and the "Buy Yen" Note
On Friday, the New York Fed reportedly asked at least two major US banks to provide quotes for the yen against the euro. The yen rose more than 1% against both the dollar and the euro on Friday. On Thursday, the yen surged more than 3% intraday against the dollar. Data compiled from a comparison of Bank of Japan accounts and money broker forecasts suggests that Japan spent approximately 8.45 trillion yen (about $52.8 billion). This is likely the largest single-day intervention scale ever recorded by Tokyo. Throughout these two days of intensive action, Bessent's influence was significant. In an interview, Bessent stated that the yen is "severely undervalued" and that "excessive volatility" is unhealthy. Subsequently, a photo emerged in Friday reports showing a note in front of Bessent at a cabinet meeting reading, "Buy 5 to 10 billion dollars worth of yen."
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