The United States has joined Japan in a coordinated effort to support the Japanese yen, marking the first joint purchase of the currency since the Asian financial crisis in 1998. However, the intervention has drawn immediate attention because US authorities reportedly funded their participation by selling euros instead of dollars, an approach that has surprised currency analysts and prompted debate over its likely effectiveness.
The coordinated Japanese yen intervention briefly strengthened the currency to around ¥157 against the US dollar after it had fallen to its weakest level in four decades. While Japan is estimated to have committed approximately $52.8bn to the operation, the size of the US contribution has not been formally disclosed. Images of Treasury Secretary Scott Bessent’s briefing notes have suggested an amount between $5bn and $10bn.
Experts question the decision to sell euros instead of dollars
The intervention represents a rare moment of cooperation between Washington and Tokyo. The last time both governments jointly purchased yen was during the 1998 Asian financial crisis. More recently, in 2011, the United States joined other G7 nations in selling yen after the Fukushima disaster pushed the Japanese currency to unusually strong levels, threatening the country’s export competitiveness.
This time, the challenge is the opposite. The yen has steadily weakened for more than a decade, reflecting wide interest rate differences between Japan and the United States, along with concerns about Japan’s fiscal position and prolonged ultra-loose monetary policy.
Former US Treasury official Mark Sobel argued that supporting the currency without addressing those structural issues may have limited value. He said the Treasury’s Exchange Stabilization Fund should not be used simply because it can generate a trading profit unless Japan is also tackling the policies contributing to the yen’s weakness.
Robin Brooks, senior fellow at the Peterson Institute for International Economics, also questioned the decision to sell euros rather than dollars. He argued that foreign exchange intervention depends heavily on market confidence and warned that introducing an unusual funding method risks creating uncertainty among investors. Brooks expects downward pressure on the yen to continue while Japanese government bond yields remain artificially restrained.
Former Treasury assistant secretary Edwin Truman described the approach as “weird,” saying that selling dollars directly to purchase yen would have been a more logical strategy if the primary objective was to strengthen Japan’s currency against the dollar.
Japan’s policy dilemma remains the larger challenge
Many economists believe the intervention addresses the symptoms rather than the underlying causes of the yen’s decline. The Bank of Japan continues to manage borrowing costs carefully because rapidly rising government bond yields could significantly increase financing costs for one of the world’s largest public debt burdens.
Analysts at ING, including Chris Turner and Michiel Tukker, described currency intervention as a tool that can create breathing space rather than permanently alter exchange rate trends. They noted that unless interest rate differentials narrow or broader economic conditions shift, coordinated action alone is unlikely to reverse the yen’s longer-term trajectory.
The intervention also reflects a broader evolution in US foreign exchange policy. For much of the past two decades, Washington has rarely entered currency markets directly. That changed when Treasury Secretary Scott Bessent used the Exchange Stabilization Fund to support Argentina’s peso before the country’s midterm elections, with Argentina later repaying the $2.5bn assistance.
According to the Bank for International Settlements, average daily turnover in global foreign exchange markets exceeded $7.5tn in 2022, highlighting the scale of liquidity governments face when attempting to influence exchange rates. Against that backdrop, even sizeable official interventions often have only temporary effects unless supported by broader economic policy changes. This illustrates why investors typically focus more on monetary policy signals than one-off market operations.
Investors will watch policy, not intervention alone
The latest operation may slow the yen’s decline in the short term, but market participants are likely to judge its success by developments beyond a single trading session. Future decisions from the Bank of Japan on interest rates, Japan’s fiscal strategy, and US monetary policy will probably carry greater weight than the intervention itself.
For investors, the coordinated action signals a greater willingness by Washington to participate in foreign exchange operations when broader economic or geopolitical interests are involved. Whether this becomes a lasting feature of US policy will depend on how effective these interventions prove over the coming months.
