RESOLVING THE LEDGER
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The US joined Japan in engineering one of the most notable rebounds in the yen since the currency began its years-long slide, a decline that’s stoked inflation in the Asian nation and rippled through global markets.
At the close of New York trading on Friday, the yen was quoted at 157.40 to the dollar, the strongest since early May. Just two days earlier it was flirting around the weakest levels since 1986, sounding alarm bells in Tokyo as rising import costs squeeze businesses and consumers.
The sharp gains were fueled by a combination of direct purchases of the yen, calls by officials to banks that trade the currency and jawboning from US Treasury Secretary Scott Bessent and Japanese Finance Minister Satsuki Katayama. Bessent, who has deep knowledge of Japan’s place in global markets from his hedge fund career, indicated that he thinks the yen is too weak.
While direct market intervention and verbal support have triggered rebounds before, only to see them fade away in days or weeks, the degree of coordination between the two countries now appears to be the tightest in decades, which has raised the stakes for traders betting against the yen.
Bessent’s commitment to shoring up the yen was clearly shown when Reuters published a photograph of a notepad in front of him at a cabinet meeting in Camp David on Friday. Under a “To Do” title, it was written “Buy Japanese Yen (JPY) $5-10 bil.”
“The market had underestimated the authorities,” said Michiyoshi Kato, a senior adviser in the currency and rates client team at Sumitomo Mitsui Trust Bank in Tokyo. “It has likely become more difficult for speculators to sell the yen. If there is another intervention, the dollar-yen exchange rate will likely fall below 155 yen.”
Japanese authorities bought yen and sold dollars during New York trading on Friday, according to one person with knowledge of the matter. The Nikkei reported that the Japanese government and the Bank of Japan intervened to buy yen for a second straight day, while the Financial Times said separately that the Federal Reserve Bank of New York sold euros to buy yen on behalf of the US Treasury Department.
At least two major US banks were asked by the New York Fed to check the rate on the yen against the euro during the day, two people familiar with the matter told Bloomberg.
The yen advanced more than 1% against both the dollar and the euro Friday. It recorded an intraday jump of more than 3% versus the greenback on Thursday, when Japan spent around ¥8.45 trillion ($52.8 billion), according to data compiled by Bloomberg and based on a comparison of BOJ accounts and money brokers’ forecasts. That would likely be the biggest-ever intervention on a single day by Tokyo.
Bessent initially generated headlines by saying in a Fox Business interview on Thursday that the yen is “very undervalued” and “excess volatility” isn’t healthy.
The Treasury did not immediately respond to a request for comment late Friday in US hours and officials at Japan’s Ministry of Finance were not immediately available to comment on Saturday in Tokyo.
The yen has been under pressure from rising oil prices, Japan’s persistent budget deficits and a yawning interest-rate gap with the US and other major economies.
A failure to arrest the drop would have impact that goes far wider than Japan as turmoil in the nation’s financial markets tends to spill out globally. Volatility in its government bond market this year has flowed through into US Treasuries, drawing the ire of Bessent.
And the more that the yen’s depreciation gives Japan an advantage in trade with the US, the more it is likely to irk President Donald Trump.
Yet the rub for Trump administration is that if Japan is left on its own to defend the yen, Tokyo may have little choice except to sell down part of its holdings of Treasuries to fund more currency intervention, which would have a negative impact on US borrowing costs.
The Finance Ministry’s top currency bureaucrat, Atsushi Mimura, said on Friday that Japan is getting more than “moral support” from Washington. Meanwhile, Katayama, gave a call-out to Bessent, describing him as “one of the most knowledgeable experts in markets.”
“Bessent’s influence is significant,” said Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute and a former BOJ official. “The US is now becoming more cooperative with Japan’s interventions.”
The market intervention on Thursday and Friday came as the BOJ board gathered to set monetary policy. It voted 8-1 to keep interest rates unchanged, having raised them to 1% in June. While that’s the highest level since 1995, it is well below the 3.75% upper bound for the US policy rate.
At a post-decision briefing, Governor Kazuo Ueda offered little fresh support for the currency. He opened the door to the possibility of rate hikes at upcoming meetings without signaling this was likely.
Bessent said in a social media post that he looks forward to meeting with Ueda at a gathering of the Group of 20 in Asheville, North Carolina in August. The BOJ “has demonstrated a strong commitment to monetary and financial stability,” adding that “we continue to enjoy a strong relationship and close coordination.”
For some investors, the interest rate gap remains a big impediment for the yen.
“Without backing from rate differentials, the impact of FX interventions is likely to be relatively short-lived,” Evercore ISI strategists Marco Casiraghi and Gang Lyu wrote Friday. “While flagging the exchange rate as a source of risk to inflation, the BOJ has so far refused to get pulled into a more active role in supporting the yen.”
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