US and Japan Jointly Intervene in Currency Market for First Time in Nearly 30 Years; Fed: Action Led by US Treasury, No Use of Its Own Funds

The Federal Reserve said on Wednesday that the joint market intervention with Japan in late July to support the yen was led by the U.S. Treasury Department, and the Fed's own funds were not used. The action marked the first joint intervention by the U.S. and Japan in nearly 30 years to prop up the yen, after the Japanese currency had fallen to its lowest level against the dollar since the 1980s. Minutes from the Fed's September monetary policy meeting showed that the New York Fed operated "solely in its capacity as fiscal agent of the U.S. Treasury" during the action, using Treasury funds. The System Open Market Account (SOMA), which the Fed uses to conduct monetary policy and which primarily holds U.S. Treasuries and other securities, was not involved. The minutes did not disclose the exact timing or scale of the intervention. U.S. Treasury Secretary Bessent said last month that the United States had committed only a "symbolic" amount of funds to the action, and that supporting the yen was in the U.S. interest. In recent years, the yen's persistent weakness has become a major issue for Japanese policymakers. A weaker yen drives up import prices and adds to the cost-of-living burden on Japanese households. Meanwhile, U.S. President Trump had previously criticized the yen as too weak, arguing that a weak yen gives Japanese manufacturers an unfair competitive advantage in international trade. The late-July action marked the first joint intervention by Tokyo and Washington in nearly 30 years to support the yen. Before that, the yen had depreciated sharply, at one point falling to its lowest level against the dollar since the 1980s. Japan has spent heavily to stabilize the exchange rate. Data from Japan's Ministry of Finance showed that in the month through August 26, Japan spent a record 15.4 trillion yen, or about $97.5 billion, on currency intervention. Japanese Finance Minister Katayama Satsuki and Bessent have both said they remain willing to intervene again if necessary. However, market participants believe that even another joint intervention by the U.S. and Japan may not be enough to sustainably reverse the yen's depreciation trend. Key factors still affecting the yen include the divergence in U.S. and Japanese monetary policy. If the market believes the Bank of Japan cannot tighten policy fast enough to keep pace with the Federal Reserve, the yen could come under renewed downward pressure. Some strategists warned that under such circumstances, the yen could once again approach the 160 mark against the dollar. In addition, Japanese Prime Minister Takaichi Sanae's plan to push for expansionary fiscal spending has also raised market concerns about Japan's fiscal outlook and further weighed on the yen. As of Wednesday, the yen was little changed against the dollar, trading near 157.95. With the exchange rate still near historic lows, whether the U.S. and Japan will intervene jointly again, and whether the Bank of Japan can narrow the interest rate gap with the Federal Reserve through monetary policy, will remain a focus of the foreign exchange market.