The rare intervention by the US: protecting the yen, but more importantly, safeguarding US Treasuries

This is an epic intervention accidentally exposed by a "small note".

On July 31, Scott Bessent, the US Treasury Secretary, was photographed by journalists with a "to-do list" during a Trump cabinet meeting—with one conspicuous item: "Buy JPY, $5B to $10B". A few hours later, the Federal Reserve Bank of New York, on behalf of the US Treasury, coordinated with Goldman Sachs and Morgan Stanley to execute the sale of euros and purchase of yen.

On August 3, the US and Japanese Ministries of Finance simultaneously confirmed that both countries jointly intervened in the FX market to buy yen on July 31 (US Eastern Time). This is the first joint US-Japan yen-buying intervention in 28 years since the 1998 Asian Financial Crisis; and the first coordinated FX action of any kind since the 2011 Great East Japan Earthquake, 15 years prior.

The yen exchange rate surged from 162.80 to 157.80 in just 50 minutes, appreciating by around 5 yen. Thus began a currency war driven by the "deep binding" of US Treasuries.

Panorama of the Intervention: 500 points in 50 minutes, a $52.8 billion "Blitz"

During the New York trading session on July 30, the yen had fallen to nearly 164 to the dollar—its lowest level in almost 40 years since 1986. Starting at 9:30 AM (9:30 PM Beijing time), the yen began a rapid ascent. In just 50 minutes, the exchange rate soared from around 162.80 to 157.80, an appreciation of roughly 5 yen with an intraday gain over 3%.

According to Bank of Japan account data and currency broker estimates, the intervention on July 30 reached 8.45 trillion yen (about $52.8 billion)—very likely the largest single-day FX intervention in Japanese history. CME data shows that yen trading volumes that day soared to the highest levels in almost 12 years.

More crucially, this was not a solo act by Japan. On July 31, the US Treasury directly entered the market through the New York Fed, selling euros and buying yen. This was the first direct US yen-buying since 2011, and the first time in nearly three decades that the US teamed up with Japan to directly support the yen. At the same time, South Korea also unusually sold dollars, pushing the won to a nine-month high. A US-Japan-Korea "trilateral defense" of exchange rates had evidently taken shape.

America's "Open Strategy": Protecting Yen, But More So US Treasuries

The real highlight of this intervention is not Japan acting again, but the US moving from "verbal support" to "real money".

Why did the US step in to help? The answer is hidden 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 disorder, Japanese authorities may be forced to liquidate massive amounts of US Treasuries for dollars to fund interventions. This would directly push up already high long-term US Treasury yields—the 10-year Treasury yield has already risen nearly 57 basis points this year.

Louise Loo, Head of Asia Economics at Oxford Economics, points out this may be "one of the key reasons" behind US participation. "There’s a self-protection factor at play. Japan’s potentially aggressive fiscal policy could cause market volatility, impacting the US Treasury market, and thus undermine the stability of the dollar."

Therefore, the US logic for joint intervention is both clear and ruthless: rather than letting Japan be forced into US Treasury dumps—thereby raising US rates—it's better to sell euros for yen, thus stabilizing both the yen and the US Treasury market. If Japan is forced to source dollars from large-scale Treasury sales due to unilateral intervention, it would directly increase long-term US Treasury yields and threaten US fiscal and financial stability.

Furthermore, the timing of the US-Japan joint intervention is also intriguing—it happened right after the Fed kept rates unchanged, and Chair Walsh’s comments were interpreted by the market as dovish. TS Lombard economists noted that the Fed’s dovish stance created a window for the Japanese Ministry of Finance’s intervention.

At the same time, the US also hopes to provide liquidity support to the stock market by depressing the dollar’s exchange rate, which resonates with Japan’s goal of lifting the yen exchange rate. Rakuten Securities’ Chief Economist and former Bank of Japan official Nobuyasu Atago emphasized: “I can’t help but feel that the coordination is not only in FX, but there’s also a tacit alignment in monetary policy.”

FIMA Repo Facility: Sourcing Dollars Without Selling US Treasuries

To fully quell the market's worries about "Japan dumping Treasuries", the US and Japan played a key card.

In its August 3 statement, the Japanese Ministry of Finance specified that it would activate the Fed’s Foreign and International Monetary Authorities (FIMA) Repo Facility in the future. This tool allows foreign central banks to temporarily pledge US Treasuries for dollar liquidity, without selling them outright on the open market.

State Street’s Senior Macro Strategist Masahiko Loo claimed this signal "may be more important than the intervention itself". “Emphasizing the use of the FIMA repo mechanism signals that Japan can increase USD liquidity with no need for outright sales of Treasuries... This quells concerns that MoF intervention could pressure US funding markets through short-term Treasury sales.”

However, Japan Research Institute's Chief Economist Takeshi Ueno also warned: Despite FIMA being essentially dollar borrowing that must be returned, even without direct Treasury sales, large usage of the facility may force the US to issue more debt, ultimately altering supply-demand dynamics for US Treasuries.

Market Reaction: 156 Level Reclaimed, Shorts "Squeezed"

The intervention's effect was immediate. As of the August 3 Asian session, USD/JPY had broken below 157, at one point reaching the 156 level—the first time back to this range in nearly three months since early May.

The US and Japanese sides then engaged in intensive "expectations management":

Trump: On August 2 aboard Air Force One, he said, “Japan is in deep trouble with yen depreciation; they’re looking for a bit of help.” He added, “Setting the Pearl Harbor attack aside, Japan has long been very friendly to the US.”

Bessent: On the night of August 2, he wrote on social media, "The coordinated US-Japan FX intervention has effectively curbed disorderly yen volatility," and stated that "we will not hesitate to participate in further joint intervention."

Japanese Finance Minister Satsuki Katayama: Confirmed the joint intervention on August 3, asserting, "We will not hesitate to further coordinate FX market intervention going forward."

Japan’s Ministry of Finance: Clearly stated the intervention was carried out “based on the US-Japan Joint Statement issued in September 2025,” aimed at addressing “excessive and disorderly recent yen movements.”

Limitations of Intervention: Unchanged Rate Gap, Difficult to Reverse Trends

However, historical experience shows FX intervention can alter pace, but rarely reverses trends.

This move marks Japan’s second large-scale FX intervention in 2026. The first occurred from April 28 to May 27, totaling 11.73 trillion yen ($73.2 billion), setting a record. But its effect lasted only about a month before the yen slid back to pre-intervention lows.

The fundamental issue is the US-Japan rate differential—Fed fund rates remain as high as 3.50%–3.75%, while Japan’s policy rate is just 1%, keeping the gap at 250–275 basis points. Franklin Templeton Institute’s Global Investment Strategist Summer Chan noted, "Repeated intervention might buy time, but each round shares the same limitation: Japanese authorities want a stronger yen but are unwilling to pay the policy price required to achieve it."

Brookings Institution Senior Fellow Robin Brooks stated outright: “As long as JGB yields are artificially capped, the yen is overvalued and needs to weaken.” He believes intervention can’t resolve the root issue.

Secondly, the structural blow from Middle East conflict to Japan’s economy persists, as 70% of its oil relies on Middle East imports. As long as Hormuz Strait shipping is disrupted, high energy prices will continue to squeeze Japan’s trade balance. Moreover, Japan’s fiscal and industrial structural woes—aging population, hollowing-out industries, and lack of innovation—have not changed, leaving a long-term drive for yen appreciation lacking.

Even more concerning is that intervention itself can have "side effects". Peterson Institute for International Economics Senior Fellow Robin Brooks warns: “Coordinated US-Japan intervention may ultimately weaken, not strengthen, faith in the yen.”

In the long run, the fate of the yen depends on three variables: whether the Bank of Japan can hike rates again this year (with markets expecting as early as October), whether Middle East tensions decrease to lower energy import costs, and whether US interest rate policy pivots.