Yen Falls to 1986 Level, Japan-US First Foreign Exchange Intervention in 15 Years

Japan and the United States intervened together in the foreign exchange market for the first time in 15 years. Both bought the yen in a coordinated manner after the Japanese currency fell to its weakest level since 1986.

Kyodo News, quoted on Monday, August 3, reported that the intervention was carried out on the New York trade on Friday. Japan and the US also warned that similar steps could be taken again if the yen movement was considered too wild.

Foreign exchange intervention is a step for the authorities to buy or sell currencies to hold exchange rate movements.

The yen briefly touched 163.99 per dollar on July 23. That level was the weakest in nearly 40 years.

Pressure on the yen has increased amid market concerns over Prime Minister Sanae Takaichi's expansionary fiscal policy and how the government is financing it.

Since Takaichi took office last October with aggressive spending policies and monetary easing, the yen has weakened by more than 10 yen against the US dollar.

Markets are worried that Japan's fiscal health, already one of the worst in the group of advanced economies, will worsen.

Pressure is also coming from the bond market. Last month, the yield on 10-year Japanese government bonds touched 2.900 percent, the highest level in nearly three decades.

Yield is the rate of return that investors demand from bonds. If bond prices fall, yields usually rise.

Japanese Finance Minister Satsuki Katayama said joint intervention with the US was carried out to fight excessive volatility and disorderly movements in the yen in recent months.

"The Japanese Ministry of Finance remains attentive and maintains close communication with our partners in the US Department of the Treasury. We will not hesitate to carry out further joint interventions," said Katayama.

Volatility is a condition when the price or value moves sharply up and down in a short time.

After Katayama's warning and US Treasury Secretary Scott Bessent, the yen strengthened to below 155 per US dollar from a high of 157 on Monday morning.

However, Katayama declined to comment on whether the foreign exchange intervention would be carried out again on Monday morning.

Joint currency interventions are usually carried out in emergency conditions. Japan is now facing a weakening yen that is driving up import costs. This condition risks pushing inflation and adding pressure on long-term government bonds.

Kyodo News said Washington was also believed to be wary of Japan's long-term interest rate hikes. Analysts assessed that the increase could also help push US interest rates ahead of the midterm congressional elections in the fall.

The joint intervention of Japan-US was previously carried out in March 2011. At that time, the move was aimed at restraining the strengthening of the yen after the massive earthquake and tsunami in northeastern Japan which triggered the Fukushima Daiichi nuclear crisis.

Katayama said the latest coordination with the US aims to link Japan's economic security with the Tokyo-Washington alliance.

He said Japan and the US had been closely coordinating since the joint statement of the two countries' finance ministers in September. The statement confirmed that intervention was reserved to fight excessive volatility and disorderly depreciation or appreciation.

Depreciation is a weakening of the value of the currency. Appreciation is a strengthening of the value of the currency.

Atsushi Mimura, Japan's top currency diplomat, called the latest coordinated intervention a full-fledged form of the Japan-US currency alliance. He said the two countries would continue to respond without losing momentum.

US President Donald Trump on Sunday indicated that Washington intervened in the purchase of the yen at the request of Japan. He said the move also benefited the US economically.

"We are always there for Japan. Japan has been very good to us, of course with the exception of Pearl Harbor," Trump said, referring to the Japanese attack on the US naval base in Hawaii in 1941.

In New York on Friday, the yen jumped to below 157 per dollar. Japanese government sources confirmed the existence of yen buying intervention by the currency authorities.

Previously, the yen had also strengthened to around 157 on Thursday. The Japanese currency rose nearly 5 yen in about 50 minutes before falling back to 160.

The move was later confirmed as the result of Japanese intervention by market and government sources.

On Sunday, Bessent wrote on social media that the intervention was carried out to counter the disorderly movement of the yen. He also stated that the US would not hesitate to intervene again with Japan.

According to Kyodo News, Japanese authorities had previously intervened between April and May this year to hold back the sharp depreciation of the yen. The impact was only short-lived, although it brought the yen to the 155 zone.

Thursday's intervention is expected to cost 6 trillion yen or about 38.3 billion US dollars to 7 trillion yen.

The move came hours after Takaichi promised to cut consumption taxes on food and beverages without detailing the source of funding.

Pressure on the yen is also related to the decision of the Bank of Japan or BOJ. The Japanese central bank is expected to maintain its benchmark interest rate at 1.0 percent, which has sparked concerns that the BOJ is lagging behind in responding to inflation.

BOJ Governor Kazuo Ueda then signaled a further interest rate hike. He warned of the risk of inflation and the impact of the weakening yen on consumer prices.

Mimura said he shared views with the BOJ on economic and price prospects. He also promised to continue to align currency policy with the central bank's monetary policy.