Japan’s finance ministry confirmed on Monday that it had carried out coordinated yen-buying intervention with the United States, and warned that both countries stand ready to act again to stem the currency’s slide to fresh 40-year lows, according to Reuters.
The confirmation triggered a sharp spike in the yen, which touched a roughly three-month high before paring some of its gains.
Yen jumps as traders rush to close bets against it
The confirmation came as the yen was already rising in Asian trading on Monday. The yen gained around 1% against the dollar to reach about 155.20 yen per dollar. That was its strongest level in roughly three months.
It later gave back some of the gains. The move followed a rise of more than 3% over the previous two trading sessions. The dollar fell as much as 0.6% during the day, reaching around 156.50 yen. Market participants said the move showed a rapid unwinding of short yen positions built up over months of currency weakness.
Speaking to Reuters, SMBC chief foreign exchange strategist Hirofumi Suzuki said, “Given the magnitude of the move in USD/JPY and its timing, the possibility of intervention cannot be ruled out.” He said the large number of short positions in the yen could make the currency rise much faster as investors rush to close those bets.
Markets are also now watching closely for signs of another intervention.
A rare joint action by Japan and US
The latest intervention is significant because Japan and its allies have not jointly stepped in to support the yen since 2011. That intervention came after Japan’s devastating earthquake and tsunami, when the country’s currency markets were under major pressure.
Japan’s top currency diplomat, Atsushi Mimura, said the latest move showed the strength of the US-Japan relationship. He also said Tokyo would continue to keep its currency policy in line with the Bank of Japan’s monetary policy.
US President Donald Trump spoke about the US role a day before Japan officially confirmed the intervention. Trump described Washington’s involvement as an act of goodwill towards Japan and said the US would continue to support its ally.
US Treasury Secretary Scott Bessent also confirmed that the two countries had worked together. Bessent backed Japan’s efforts to correct an undervalued yen. Bessent said Washington “will not hesitate to participate in further joint intervention.” He also again called on the Bank of Japan to continue raising interest rates.
The Bank of Japan kept interest rates unchanged at its latest meeting. However, it has indicated that another increase could come as early as its September meeting.
Japan may have spent nearly $59 billion
Data from the Bank of Japan cited by Reuters suggested that Tokyo may have spent as much as $58.97 billion buying yen in New York markets the previous Thursday.
Elias Haddad, global head of markets strategy at BBH, said coordinated intervention has historically worked. He argued that investors should generally move with official currency operations rather than bet against them.
Haddad added that all three coordinated US intervention efforts since 1998 had succeeded.
The yen’s sharp rise, however, may not last, analysts warned, as the main reasons behind its weakness remain. Japan still has much lower interest rates than the US, making dollar investments more attractive. High fuel costs linked to the Middle East conflict are also hurting the yen.
Goldman Sachs said Japanese investors bringing money back home could offer more lasting support. Japan’s earlier currency intervention and June rate hike also failed to give the yen a lasting boost.
Dollar also weakens against other currencies
The yen’s rise came at a time when the US dollar was already losing ground against several major currencies. The euro rose to a six-week high of around $1.1559.
The British pound was close to a two-week high at about $1.3476. The dollar index, which measures the US currency against a basket of major currencies, was around 99.71 and little changed on Monday. It had fallen more than 1.5% the previous week.
Lower oil prices also put pressure on the dollar. Oil prices have fallen after Trump decided to delay a threatened strike on Iran and reports emerged that the US and Iran were preparing for talks.
The Australian and New Zealand dollars also moved slightly higher.
What markets are watching now
Investors will now focus on US jobs and inflation data ahead of the Federal Reserve’s September meeting. Strong US jobs or sticky inflation could keep US rates high, making it harder for the yen to recover.
Japan’s joint intervention has boosted the yen for now, but its longer-term recovery will depend on bigger economic changes.
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