This was an epic intervention, accidentally exposed by a small "to-do" note. On July 31, US Treasury Secretary Scott Bessent, while attending a Trump cabinet meeting, was photographed by reporters with a list of action items on his desk. The list prominently read: "Buy Japanese Yen (JPY), $5 to $10 billion." 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 simultaneously confirmed that the two countries had jointly executed a yen-buying intervention in the foreign exchange market on July 31 (Eastern Time). This was the first joint yen-buying operation by the US and Japan in 28 years, since the 1998 Asian financial crisis. It was also the first time in 15 years, since the 2011 Great East Japan Earthquake, that any form of coordinated intervention had occurred. The yen exchange rate surged from 162.80 to 157.80 in just 50 minutes, an appreciation of approximately 5 yen. A currency war, driven by the deep entanglement of US Treasuries, had begun.
The Intervention in Full View: A 500-Point Surge in 50 Minutes, a $52.8 Billion "Raid"
During the New York trading session on July 30, the yen was trading near the 164 mark against the US dollar, its lowest level in nearly 40 years since 1986. At 9:30 AM (9:30 PM Beijing time on July 30), the yen began a sharp rally. In just 50 minutes, the exchange rate surged from around 162.80 yen to 157.80 yen, an appreciation of about 5 yen, with a daily gain of over 3%. According to data from the Bank of Japan's accounts and forecasts from currency brokers, the scale of the intervention on July 30 alone was as high as 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 surged to its highest level in nearly 12 years.
More critically, this was not a solo effort by Japan. The US Treasury, through the New York Fed on July 31, directly entered the market by selling euros and buying yen. This was the first time the US had directly bought yen since 2011 and the first time in nearly 30 years it had joined forces with Japan to directly support the yen's exchange rate. Simultaneously, South Korea also took a rare step, selling dollars in coordination, pushing the won to a nine-month high. A "three-nation coordinated" currency defense involving the US, Japan, and South Korea was taking shape.
The US's "Clear Strategy": Defending the Yen, but More So Defending 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 choose to lend a hand? The answer lies behind Bessent's "to-do" list. Japan is the largest foreign holder of US Treasuries, with a portfolio exceeding $1.1 trillion. If the yen continues to depreciate in a disorderly manner, the Japanese authorities would be forced to sell off US Treasuries on a massive scale to secure US dollars for intervention funds. This would directly push up the already elevated long-term US Treasury yields—the 10-year yield has already risen by nearly 57 basis points this year.
Louise Loo, head of Asian economics at Oxford Economics, pointed out that this is likely "one of the key reasons" behind US involvement. "There is an element of self-preservation here. Japan's potential aggressive fiscal policy could lead to market volatility, which would then spill over into the US Treasury market, thereby destabilizing the US dollar."
Therefore, the logic behind the US's participation in the joint intervention is clear and harsh: rather than force Japan to sell US Treasuries, pushing up US interest rates, it is better to proactively sell euros and buy yen. This both stabilizes the yen and protects the US Treasury market. If Japan had been forced to sell off US Treasuries on a large scale to raise dollars for unilateral intervention, it would have directly pushed up US long-term bond yields, impacting the stability of US fiscal and financial markets.
Furthermore, the timing of the joint US-Japan intervention is also noteworthy—it occurred just after the Federal Reserve held interest rates steady and Chairman Walsh's speech was interpreted as dovish by the market. TS Lombard economists noted that the Fed's dovish stance created a favorable window for the Japanese Ministry of Finance to implement its intervention. At the same time, the US hoped to support stock market liquidity by weakening the dollar, creating a policy resonance with Japan's goal of strengthening the yen. Nobuyasu Atago, chief economist at Rakuten Securities and a former Bank of Japan official, stated, "I can't help but feel that they are not only considering coordination on exchange rates but also a tacit understanding on monetary policy levels."
The FIMA Repo Facility: Creating Dollars Without Selling Treasuries
To completely dispel market concerns about "Japan selling US Treasuries," the US and Japan also played a key card. In its statement on August 3, the Japanese Ministry of Finance explicitly stated that it would utilize the Federal Reserve's "Foreign and International Monetary Authorities Repo Facility" (FIMA Repo Facility) in the future. This facility allows foreign central banks to obtain US dollar liquidity by temporarily pledging US Treasuries, without having to sell the bonds directly in the open market.
Masahiko Loo, senior macro strategist at State Street Bank, stated that this signal "may be more important than the intervention itself." "Emphasizing the availability of the FIMA Repo Facility shows the market that Japan can increase dollar liquidity without selling Treasuries... This eliminates concerns that the Ministry of Finance's intervention might pressure the US financing market through short-term Treasury sales."
However, Tsuyoshi Ueno, chief economist at the Nissay Basic Research Institute, also issued a warning: FIMA is essentially a dollar loan that must be repaid in the future. Even without directly selling US Treasuries, heavy use of this facility would force the US to issue more bonds, ultimately altering the supply and demand dynamics of the US Treasury market.
Market Reaction: The 156 Level Recovered, Shorts Are "Squeezed"
The intervention had an immediate effect. As of the Asian trading session on August 3, the dollar-yen pair had fallen below the 157 level, briefly touching the 156 range—the first time it had returned to this level in about three months since early May. Both the US and Japan then launched a barrage of "expectation management":
Trump: On August 2, aboard Air Force One, stated, "Japan is deep in the quagmire of yen depreciation, and they want a little help." He added, "Setting aside the Pearl Harbor attack, Japan has been very friendly to the US for a long time."
Bessent: On the evening of August 2, posted on social media, "The coordinated US-Japan foreign exchange intervention has effectively curbed the disorderly fluctuations of the yen exchange rate," and stated he would "not hesitate to participate in further joint interventions."
Japanese Finance Minister Satsuki Katayama: On August 3, confirmed the joint intervention and stated, "We will also not hesitate to implement further joint foreign exchange interventions in the future."
Japanese Ministry of Finance: Stated that this intervention was conducted "in accordance with the 'Joint Statement of the US-Japan Finance Ministers' issued in September 2025," aimed at addressing "the recent excessive volatility and disorderly movements of the yen."
The Limitations of Intervention: Unchanged Rate Differentials, An Unlikely Trend Reversal
However, historical experience shows that foreign exchange intervention can often only change the pace, not reverse the trend. This action marked Japan's second large-scale round of yen intervention in 2026. The first round occurred between April 28 and May 27, with a total scale of 11.73 trillion yen (approximately $73.2 billion), setting a historical record. But the effect of that intervention lasted only about a month before the yen fell back to its pre-intervention lows.
The fundamental issue lies in the US-Japan interest rate differential. The US federal funds rate is as high as 3.50% to 3.75%, while Japan's policy rate is only 1%, maintaining a spread of 250 to 275 basis points. Xiayi Chen, global investment strategist at Franklin Templeton Investment Institute, noted, "Repeated interventions might buy time, but each round has the same limitation: the 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, stated bluntly, "As long as Japanese government bond yields are artificially suppressed, the yen is overvalued and needs to fall." He believes that intervention cannot solve the fundamental problem.
Secondly, the structural impact of the Middle East conflict on the Japanese economy continues. Japan relies on the Middle East for 70% of its oil imports. As long as the transport disruption in the Strait of Hormuz persists, high energy prices will continue to erode Japan's trade balance. Additionally, Japan's fiscal and industrial structural difficulties remain unchanged. Long-term issues such as an aging population, industrial hollowing-out, and lack of innovation dynamism mean there is no fundamental impetus for sustained yen appreciation.
More concerning is the potential "side effect" of the intervention itself. 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 run, the yen's fate depends on three variables: whether the Bank of Japan can raise interest rates again within the year (the market expects the earliest opportunity to be in October), whether the Middle East conflict can ease to lower energy import costs, and whether the path of US interest rates shifts.
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