US and Japan Jointly Support Yen as Dollar Hits 40-Year High on August 4

The United States and Japan jointly intervened in currency markets on Friday for the first time since 2011, selling euros and buying yen to halt the currency’s sharp decline. The yen had weakened to nearly 164 per dollar, its worst level since 1986. Treasury Secretary Scott Bessent praised the Federal Reserve’s FIMA facility and called for it to be expanded to support future interventions and stabilize global markets.

Why the yen collapsed against the dollar

Japan’s currency has slid sharply since 2022, when the U.S. raised interest rates while Japan kept rates low. This interest rate gap created a carry trade where investors borrowed cheap yen and invested in higher-returning U.S. Treasurys and stocks. Japan’s massive government debt, aging population, and expensive energy imports also weakened the currency. At one point last week, one dollar bought nearly 164 yen, the weakest pair since 1986.

How the intervention worked and what changed

On Friday, the U.S. Treasury and Japanese authorities coordinated action to support the yen. The Treasury sold euros from its Exchange Stabilization Fund to fund yen purchases. The yen recovered 3.5% from its low, retreating to just under 157 per dollar by Monday afternoon U.S. time. Japan’s Finance Minister Satsuki Katayama said the two countries “will not hesitate to conduct further joint intervention” to counter excessive volatility.

Bessent pushes Fed to expand dollar access

Treasury Secretary Bessent praised the Federal Reserve’s Foreign and International Monetary Authorities Repo Facility (FIMA), which allows foreign governments to access dollars using Treasury holdings as collateral. In a post on social media, Bessent said the facility is “an important backstop” and urged the Fed to “upsize it in the coming months.” This marks an unusual public call for the Fed to expand its operations, as the two institutions typically operate independently.

Why this matters for markets and the dollar

A weak yen stokes inflation in Japan by making imports more expensive. Analysts worry that if Japan sells large amounts of U.S. Treasurys to fund intervention, it could destabilize the dollar and Treasury markets. The carry trade that fueled dollar strength has already broken down due to Trump’s tariffs and hedging activity. The intervention signals both governments want to prevent disorderly currency swings that could ripple through global financial markets.

Final Thoughts

The rare U.S.-Japan intervention marks a shift in currency policy coordination after years of dollar strength. For Australian investors, a stabilized yen reduces volatility in Asian markets and may ease pressure on the U.S. Treasury market, which affects global bond yields and equity valuations.

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