In their first coordinated foray into currency markets in over a quarter of a century, the United States and Japan have moved to prop up the yen, triggering a dramatic intraday surge as Tokyo seeks to remedy what it calls the “substantial undervaluation” of its national currency.
A coordinated strike confirmed
Japan’s Finance Minister, Satsuki Katayama, confirmed on Monday that her ministry had executed a joint intervention with the US Treasury Department to support the struggling yen. The announcement followed a statement by her American counterpart, Scott Bessent, who wrote on social media a day earlier that “coordinated currency action on Friday helped halt disorderly fluctuations in the yen.”
The official acknowledgment validated rampant market speculation that the yen’s sudden spike at the close of last week was the direct result of aggressive buying by the authorities. The currency rocketed from roughly 164 yen to the dollar to an intraday high of 155.21 on Monday, its strongest level since May 6. By the end of trading, the dollar had softened by 0.6% to 156.58 yen, according to LSEG data.
Washington’s unusual backing
Signalling a break from the typical laissez-faire attitude towards the dollar, Katayama emphasised that the US supports Japan’s efforts to address the currency’s deep-seated weakness and stands ready to participate in further joint interventions. She stressed that her ministry remains in close contact with the American side and is prepared for fresh action if necessary.
This active collaboration is a historical anomaly. The last time the two economic powers jointly bought yen was during the 1998 Asian financial crisis. In 2011, they reversed course, selling the Japanese currency to weaken it in the aftermath of the devastating Tōhoku earthquake and the Fukushima nuclear disaster.
Speculators on the back foot
The yen has depreciated persistently this year as investors flocked to the safe-haven dollar amid escalating tensions in the Middle East and firm expectations that the interest rate gap between the US and Japan would remain wide. The Federal Reserve maintains a hawkish posture, while the Bank of Japan refrained from altering rates last week, wary of snuffing out fragile economic growth.
Market analysts suggest the joint action could force a rapid unwinding of bearish bets against the yen. “A joint intervention is a historic and significant event. In the short term, it could help clear out accumulated short positions,” wrote Michael Wan, a senior currency analyst at MUFG Bank.
Structural headwinds remain
Despite the dramatic market move, analysts caution that the yen’s weakness is not merely a product of speculation. Structural headwinds, including the soaring cost of energy imports, relatively weak inflows of foreign investment, and deep-seated concerns over Tokyo’s fiscal policy, continue to weigh heavily on the currency.
Prime Minister Sanae Takaichi’s pledge to ramp up government spending to shore up the economy adds another layer of pressure, as further stimulus risks exacerbating the yen’s depreciation and swelling the budget deficit. According to Wan, a sustained recovery hinges on fundamental shifts. He identified low real interest rates and investor anxiety over future state expenditure as the primary concerns.
A multilateral future?
Looking ahead, the rare partnership between Tokyo and Washington could widen. Paul Mackel, Global Head of Currency Research at HSBC, believes fresh joint interventions are on the table and that other central banks may join the fray.
“The European Central Bank hasn’t said anything yet, but its participation would look like a tacit international agreement to strengthen the yen,” Mackel noted.
