US and Japan Intervene in Forex Market to Stabilize Yen

The US Treasury Department and Japan's Ministry of Finance have intervened in the foreign exchange market to stabilize the yen, which has been sliding against the US dollar. The joint effort, led by US Treasury Secretary Scott Bessent, saw the Federal Reserve Bank of New York sell euros to buy yen, injecting an estimated $5-10 billion into the operation.

The yen's weakness is a concern for both countries, with US President Donald Trump raising concerns about its impact on trade. The weak yen is also driving up energy import costs, which are already elevated due to the US-Israeli war on Iran, fueling worries about inflation overshoots.

Major central banks have begun raising rates to tackle inflationary pressure from the Middle East war, making it unlikely that interest-rate differentials with Japan will narrow soon. The yen has given up most of its sharp gains from early September and traded near 159 per dollar on Friday, not far from the median six-month projection of analysts polled by Reuters earlier this month.

Historically, the US rarely participates in direct currency intervention, making the recent alliance highly symbolic. A severely undervalued yen could force Japan to liquidate massive amounts of its $1 trillion-plus US Treasury securities, risking a spike in US yields and bond market instability.