Global Central Banks Intervene in Foreign Exchange Markets

The yen's value dropped by 59% against the dollar from 2017 to 2020, but recent market developments prompted a $34 billion to $36 billion coordinated intervention between Japan and the U.S. in foreign exchange markets.

For Japan, the objective was to prevent a disorderly depreciation of the yen without changing domestic policies that result in capital outflows, which supports the carry trade. The Bank of Japan used the Federal Reserve's Foreign and International Monetary Authorities Repo Facility to access dollars rather than selling Treasuries on the open market.

The U.S. Treasury intervened to suppress rising yields from 5 to 30 years following the Fed's meeting on July 29, and to avoid Japan selling Treasuries to purchase yen, which would have put further upward pressure on U.S. yields.