U.S. and Japan Intervene in the Foreign Exchange Market Together for the First Time in Nearly 30 Years; Federal Reserve: Action Led by U.S. Treasury, No Reserve Funds Used
The Federal Reserve stated on Wednesday that the intervention to support the Japanese yen at the end of July, jointly conducted with Japan, was led by the U.S. Treasury Department, and the Federal Reserve did not use its own funds in the operation.
According to Jinse Finance, the Federal Reserve stated on Wednesday that the joint intervention in the market at the end of July by the United States and Japan to support the yen was led by the US Treasury Department, with no Federal Reserve funds involved. This action marked the first time in nearly 30 years that the United States and Japan had jointly intervened in the foreign exchange market to support the yen, after the yen had previously fallen to its lowest level against the US dollar since the 1980s.
The minutes from the Federal Reserve's September monetary policy meeting show that the New York Fed acted "entirely as a fiscal agent for the US Treasury Department" during this operation, using Treasury funds. The Federal Reserve's System Open Market Account (SOMA), which is primarily used to hold US Treasury securities and other assets for monetary policy purposes, did not participate in the intervention.
The meeting minutes did not disclose the exact timing or scale of the intervention. US Treasury Secretary Besant said last month that the US invested only a "symbolic" amount of funds in the operation and stated that supporting the yen was in the US interest.
In recent years, the persistent weakness of the yen has become a major challenge for Japanese policymakers. The yen's depreciation has pushed up the prices of imported goods and increased cost-of-living pressures on Japanese households. At the same time, US President Trump has also criticized the low exchange rate of the yen, arguing that a weaker currency gives Japanese manufacturers an unfair competitive advantage in international trade.
The action at the end of July marked the first joint intervention by Tokyo and Washington in nearly 30 years to support the yen in the foreign exchange market. Leading up to this, the yen had steadily depreciated, reaching its lowest levels against the US dollar since the 1980s.
Japan has invested significant funds to stabilize its exchange rate. According to the Japanese Ministry of Finance, during the month ending August 26, Japan spent a record 15.4 trillion yen (about $97.5 billion) on foreign exchange intervention. Japanese Finance Minister Katsuki Katayama and Besant have both stated that they are willing to take further action if necessary.
However, market participants believe that even if the US and Japan intervene again, it may not be enough to sustainably reverse the yen’s depreciation. Key factors affecting the yen’s trend still include differences in US and Japanese monetary policies. If the market concludes that the Bank of Japan’s pace of tightening cannot keep up with the Federal Reserve, the yen may face renewed downward pressure.
Some strategists warn that under such circumstances, the yen could once again approach the 160 level against the US dollar. In addition, Japanese Prime Minister Sanae Takaichi’s push for expansionary fiscal spending has raised market concerns about Japan’s fiscal outlook and further increased pressure on the yen.
As of Wednesday, the yen's exchange rate against the US dollar was largely unchanged, trading around 157.95. With the exchange rate continuing to linger near historical lows, whether the US and Japan will take further joint intervention and whether the Bank of Japan can close the interest rate gap with the Federal Reserve through monetary policy remain focal points for foreign exchange markets.
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