Is the U.S. Treasury's intervention in the yen running low on ammunition? According to JPMorgan, the calculation shows that $38 billion is far from enough for Japan to take action once.

JPMorgan stated that the U.S. Treasury has limited liquidity resources available to support currency intervention in conjunction with Japan; however, if officials adopt unconventional methods, their firepower could be significantly expanded. In a report, the bank's strategists, including Junya Tanase, wrote that as of June, the U.S. Treasurys Exchange Stabilization Fund held about 13 billion in assets and $25.5 billion in assets, which seems trivial compared to Japan's intervention scale of approximately $35 billion to $60 billion between 2022 and 2026. This assessment comes at a time when U.S. President Trump publicly supported Japan's efforts to stabilize its currency, leading to an unprecedented level of coordination between Washington and Tokyo on the yen issue. Treasury Secretary Steven Mnuchin stated that the U.S. has intervened to help address the "disorderly" fluctuations of the yen and is prepared to assist Japan again if necessary, reinforcing market expectations that both governments may take further coordinated action if the yen comes under pressure again. JPMorgan noted that the Treasury could significantly enhance its firepower by exchanging its holdings of International Monetary Fund Special Drawing Rights (SDRs) for dollars, as well as swapping foreign currency assets for dollars. In this scenario, the Treasury could theoretically access up to $187 billion, while the Feds involvement could effectively double any intervention size. However, they wrote: "We believe the U.S. Treasury does not have an unlimited capacity for intervention, as the resources of the Exchange Stabilization Fund are limited, and additional funding may require congressional appropriations." They pointed out that historically, U.S. intervention sizes usually ranged between $1 billion to $2.5 billion, far below the current liquid dollar and euro holdings of the Treasury. The strategists also mentioned that the last joint U.S.-Japan intervention to buy yen occurred on June 17, 1998, and was relatively small and executed only once. Although the dollar-to-yen exchange rate returned to pre-intervention levels in the following weeks, neither coordinated intervention nor unilateral intervention occurred again, highlighting the limited willingness among parties for sustained market operations. Overall, the strategists believe the U.S. authorities' more supportive stance than expected should reduce the risk of the dollar-to-yen rate surpassing 164. Nevertheless, they think that coordinated intervention is unlikely to drive the yen to appreciate continuously below 150, as both Japan and the U.S. seem disinclined to guide the yen into a significant strengthening.