US-Japan Intervention Stresses Dollar Liquidity and Risk Assets

The US and Japan have collaborated on a joint intervention to support the yen, marking the first such effort since the late 1990s. This move has sparked concerns about global dollar liquidity and its impact on risk assets like Bitcoin.

The intervention saw the New York Fed sell euros on behalf of the US Treasury using the Exchange Stabilization Fund (ESF). The goal was to stabilize the yen, which had fallen to around 164 per US dollar, levels described as the weakest in roughly four decades.

Treasury Secretary Scott Bessent emphasized that close coordination between Washington and Tokyo would continue. He pointed to the Fed's FIMA repo facility as a key tool for supporting dollar liquidity and preventing stress from spilling into broader markets.

The yen carry trade, which has long relied on low-yielding yen funding, is now facing pressure due to rising Japanese two-year bond yields above 1.57%. This shift could lead to an unwind of the carry trade, potentially tightening financial conditions for some market participants.