US-Japan Joint Yen Intervention Aims to Prevent Treasury Sell-Off

On Friday, the US Treasury Department, via the New York Fed, and Japan's Ministry of Finance jointly intervened in currency markets to support the yen, which had plunged to ¥164 per USD by July 28. The intervention was confirmed by Treasury Secretary Bessent and the Japanese MOF, though the exact amount remains undisclosed. Bessent's theatrical 'To Do' list at a Camp David cabinet meeting hinted at a $5-10 billion purchase. Reports suggest the New York Fed sold euros from its reserves to buy yen, a detail not yet confirmed. The intervention followed rumors that Japan might be forced to sell US Treasuries to raise dollars, which would have spiked yields. To avoid that, Japan may use the Fed's FIMA Repo Facility for dollar liquidity instead of selling Treasuries. The yen jumped from ¥164 to ¥156.9 per USD. Both sides signaled readiness to intervene again. However, previous interventions have only provided temporary relief, and analysts argue that much tighter BOJ monetary policy is needed to permanently stabilize the yen. The BOJ's policy rate remains at 1.0%, negative in real terms, despite five hikes. The BOJ has begun quantitative tightening, reducing its balance sheet by about 16%, but more aggressive action is required. Treasury yields fell after the announcement, with the 10-year at 4.69% and 30-year at 5.23%.