The United States Treasury signaled its readiness to support Japan in defending the yen, warning banks of possible intervention in currency markets, in the latest coordinated effort between Tokyo and Washington. The Treasury reportedly informed banks via the Federal Reserve Bank of New York that intervention in the yen could occur, urging institutions to be prepared for potential action.
The yen strengthened by as much as 3 percent on Thursday, amid rising trading volumes and market speculation that the Japanese government had moved to prop up the currency. Tokyo officials declined to confirm any intervention, and the yen remained firm on Friday, trading near the previous day’s intraday highs.
This development followed the Bank of Japan’s (BoJ) decision to keep interest rates steady at 1 percent, as expected by market participants. BoJ Governor Kazuo Ueda noted the risk of inflation rising above the bank’s 2 percent target and emphasized that the central bank would carefully consider future rate adjustments. Markets are pricing about a 40 percent chance of a quarter-point rate increase in September, up from 30 percent earlier in the week.
Ueda has faced pressure from investors critical of the BoJ’s cautious approach to tightening monetary policy. He pointed to factors such as artificial intelligence demand and exchange rate fluctuations as inflation risks and acknowledged the possibility of accelerating rate hikes if conditions warrant.
Market analysts viewed Ueda’s comments as hawkish relative to market expectations. Following the yen’s sharp appreciation, several experts suggested that Japan had intervened in the foreign exchange market overnight. A Mizuho Bank estimate indicated the intervention could have involved approximately ¥8.45 trillion ($52.8 billion).
The New York Fed conducted a so-called rate check on the dollar-yen exchange rate on behalf of the US Treasury, an action often seen as groundwork for direct market intervention. Japan’s Vice Minister of Finance for International Affairs, Atsushi Mimura, confirmed ongoing close coordination with US authorities and indicated that the support extended beyond moral encouragement.
The yen had earlier fallen to nearly ¥164 against the dollar, pressured by concerns over rising oil prices and fiscal stimulus plans under Prime Minister Sanae Takaichi. Following the BoJ announcement and intervention speculation, the yen strengthened to below ¥159, triggering further market discussion about additional smaller-scale interventions.
Thursday’s apparent action would be Japan’s first currency intervention since an earlier effort in April and May, during which ¥11.7 trillion was spent to support the yen. Analysts noted that the involvement of the US Treasury this time could increase the chances that the yen’s gains will hold, at least in the short term.
Some strategists, including Osamu Takashima of Citigroup, suggested it was unlikely the yen would weaken back to previous lows promptly, given the US’s apparent willingness to assist Japan. However, other experts cautioned that without sustained expectations of higher interest rates, government interventions might only offer temporary relief. With the US Federal Reserve expected to raise rates in the coming months, some traders remain skeptical, with positions betting on yen depreciation near ¥162 already emerging.