US, Japan join hands to prop up yen after currency slides to 1980s low
By Aboki Forex —
The United States and Japan intervened in the yen market on July 31, after the currency dropped to 164 per dollar, a level not seen since the 1980s. Treasury Secretary Scott Bessent said the move was needed to counter "disorderly yen movements."
The Bank of Japan and the U.S. Treasury worked together on the intervention. At that time, the yen was down by more than 11 per cent against the dollar over the past 12 months. It has since recovered some of that ground.
What the joint intervention involved
Bessent said in a tweet on Aug. 2: "We will not hesitate to participate in further joint intervention. We strongly support Japan's decisive market and monetary steps to correct the substantial undervaluation of the yen."
It is unclear how much yen the U.S. Treasury bought. But an image of a notepad belonging to Bessent suggested he planned to buy US$5-billion to US$10-billion worth of the currency.
In a twist that blindsided the European Central Bank, Treasury officials sold euros rather than dollars in exchange for yen.
A surprising and unusual move
Vikram Rai, a senior economist for TD Economics, explained the logic: "The way to make US$1 purchase less yen is to keep buying yen until that price goes up, but all sales are sales, and you could sell something else and then buy yen. That was what the U.S. was able to do. They didn't communicate that they were pursuing a weak dollar, but we do think that was likely part of it."
Economists said the U.S. government's intervention was unique and unusual. Michael Devereux, an economics professor at the University of British Columbia who specializes in international finance, said: "There is a fairly long history of coordinated interventions and they were quite effective because they signalled to the markets that there was a global unified attempt by central banks to move currencies in a particular direction. This was a bilateral action and it was taken by the U.S. without communicating to any of the other central banks."
Why the U.S. stepped in
It is not clear why the U.S. decided to intervene at this point. Many observers theorize the U.S. stepped in to ensure the Japanese government would not dump U.S. Treasury bonds if it moved unilaterally to stabilize its currency.