▲ Japanese Yen
The joint intervention by U.S. and Japanese authorities on July 31 to buy yen in response to its depreciation is seen as stemming from a shared understanding that the currency's slide to a roughly 40-year low required halting excessive weakness.
Japanese Finance Minister Satsuki Katayama stated in a message released today (August 3) that the U.S. and Japanese governments jointly intervened to purchase the yen on July 31, explaining that the move "addressed recent excessive volatility and disorderly movements in the yen."
She emphasized that Japan would maintain close communication with the U.S. and "will not hesitate to take further joint interventions in the future."
U.S. Treasury Secretary Scott Bessent also officially confirmed the move through a social media statement on August 2 local time.
Notably, following their successive official acknowledgments of the joint yen-buying intervention, the finance ministers of both countries declared that they would step in with additional joint interventions if necessary.
This joint intervention is reported to have begun taking shape in earnest during the bilateral finance ministers' meeting held in Tokyo last May.
The exchange rate approached 164 yen per dollar late last month, pushing the value of the yen to its lowest level in about 40 years.
Simultaneous market interventions timed by multiple currency authorities have historically been conducted only under extremely exceptional circumstances, such as during financial crises or major disasters.
This joint foreign exchange market intervention by the U.S. and Japan marks the first time in 15 years, following actions taken under a Group of Seven (G7) agreement when the yen surged sharply after the Great East Japan Earthquake in 2011.
At that time, the intervention was carried out by selling yen and buying U.S. dollars.
The yen's surge in 2011 was viewed as resulting from Japanese corporations and financial institutions selling foreign assets to secure yen funds in the wake of the disaster.
The last time the U.S. and Japan jointly bought yen to curb its depreciation, as they did this time, was 28 years ago during the Asian financial crisis in 1998.
Except for such exceptional cases, the United States has traditionally maintained a cautious stance toward foreign exchange market intervention, adhering to the principle that exchange rates should be left to market supply and demand.
However, analysts suggest that the U.S. decision to take joint action with Japan was driven by growing concerns that inflation worries caused by the weak yen in Japan could lead to continued interest rate hikes, which might eventually spill over into U.S. financial markets and beyond.
If Japan raises interest rates, investors who previously borrowed ultra-low-rate yen to invest in U.S. Treasuries and stock markets could withdraw their investment funds.
Such an "yen carry trade unwinding" could drive down U.S. Treasury prices, push up Treasury yields, increase volatility in global stock markets, and exert downward pressure on stock prices.
Because rising U.S. Treasury yields are tied to domestic mortgage rates in the United States, the Trump administration, ahead of the midterm elections in November, is also expected to have intended to avoid this scenario.
Following Finance Minister Katayama's official announcement of the simultaneous U.S.-Japan intervention today, the value of the yen surged in the Tokyo foreign exchange market.
Around 9:45 a.m. today, the dollar-yen exchange rate fell to 155.31 yen.
As the value of the yen rises, the fortunes of various industries within Japan are expected to diverge.
Import-reliant sectors, such as energy including crude oil and liquefied natural gas (LNG), as well as imported foods, are projected to benefit from lower import unit costs driven by the drop in the yen-dollar exchange rate.
Conversely, traditional Japanese export industries like the automotive sector could face headwinds, including deteriorated competitiveness in overseas markets.
In addition, if rising yen values increase travel costs to Japan, it could place some burden on inbound foreign tourist demand, which has previously benefited from the weak yen effect.
However, some opinions suggest that the impact of this intervention will be limited unless accompanied by interest rate hike measures from the Bank of Japan.
Eric Wallerstein, chief strategist at U.S.-based investment advisory firm Clocktower Group, told Nikkei, "U.S. and Japanese authorities recognize that the effects of past interventions have been temporary," adding, "There is a possibility that interventions will occur more frequently over the coming quarters."
He continued, "However, without accompanying policy changes such as accelerated rate hikes, the persistence will be limited," predicting that "if the Bank of Japan adjusts interest rates closer to a neutral level and crude oil prices drop back to levels seen before the military clash between the U.S. and Iran, it could stabilize around 155 yen per dollar."
Robin Brooks, a senior fellow at the Brookings Institution in the U.S., pointed out, "The fundamental cause of downward pressure on the yen is excessive debt, and exchange rate intervention will only have a temporary effect."
(Photo: Yonhap News)
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