The United States sold euros to support the Japanese yen without prior notice to the European Central Bank, a move that has deeply shocked the ECB and triggered a rare crisis of confidence among major Western central banks.
According to a Friday report citing multiple sources, the US Treasury executed the euro sale through the New York Fed last Friday, with the ECB only learning of the transaction after its completion.
ECB President Christine Lagarde and US Treasury Secretary Scott Bessent subsequently held a phone call on Saturday regarding the intervention. Some senior ECB officials view the US action as an "unprecedented breach" of the long-standing cooperative norms among Western monetary authorities.
A person familiar with European policy discussions described the intervention as "very shocking" and "disheartening," warning that the close collaborative relationship among Western central banks, which has underpinned financial stability and economic growth for decades, may now be at risk.
A historic operation bypassing the ECB
This intervention marks the first joint US-Japan effort in nearly 30 years to boost the yen, but its execution broke with convention by using euros instead of dollars.
A US Treasury spokesperson told the publication that the department does not coordinate decisions on reserve asset allocation with foreign authorities when using the Exchange Stabilization Fund (ESF). "Decisions regarding the composition of ESF reserve assets are made by the US Treasury, taking into account assessments of market liquidity, valuation, and other relevant factors from both the Treasury and the Federal Reserve," the spokesperson stated. "Last week, the Treasury reallocated assets within the ESF under this authority."
A senior Trump administration official responded, saying, "We respect the confidentiality of private discussions with international counterparts, unlike the ECB." Analysts note that the US chose to sell euros rather than dollars to avoid the interpretation that the operation was intentionally weakening the dollar, which would contradict Bessent's advocated strong-dollar policy.
However, the deeper implications of this event may extend far beyond currency markets. Since the end of World War II, a framework of mutual trust and prior consultation has formed between Western central banks and treasuries, with historical currency interventions typically conducted in a coordinated manner.
Yet, the US's use of euro reserves without informing the ECB has led European officials to believe this framework is being eroded. Some analysts have expressed concern that the decades-old foundation of trust in Western central bank cooperation may now be undermined.
Record-scale intervention for the yen
The joint intervention took place against the backdrop of the yen falling to nearly a 40-year low. Earlier this month, the yen weakened to around 164 against the dollar, its lowest level since 1986. Following the joint intervention by the US and Japan, the yen strengthened to approximately 157, but has since slipped back to near 158.
According to estimates by Masayuki Nakajima, an analyst at Mizuho Bank, based on preliminary data from the Bank of Japan, Japan's unilateral intervention over two trading days amounted to roughly 13.8 trillion yen (approximately $87 billion). "The amount Japan spent in just two trading days has already exceeded its previous record intervention of 11.73 trillion yen from April to May this year, highlighting the authorities' heightened alertness to the yen's rapid depreciation," Nakajima said.
Meanwhile, economists and analysts speculate that the US joined the intervention partly to prevent Japan from selling off large amounts of US Treasury bonds at a time when US long-term borrowing costs are near 19-year highs.
BOJ rate hike expectations grow, but market concerns linger
Although the intervention has temporarily stabilized the yen, market worries about the currency's trajectory persist. Traders warn that the Bank of Japan's pace of monetary tightening remains sluggish.
At its most recent meeting in July, the BOJ kept interest rates unchanged, but Governor Kazuo Ueda stated, "We believe there is a greater need to pay attention to inflation upside risks compared to before." Market traders currently estimate a 44% probability that the BOJ will raise rates at its next meeting in September.
At the same time, yields on long-term US Treasury bonds have spiked, as traders price in a rising risk that the Federal Reserve will maintain its current interest rate level. Although US inflation eased in June, it remains well above the Fed's 2% target.
Comments