US and Japan Join Forces to Support the Yen

The US and Japanese authorities have jointly intervened in FX markets to support the yen, marking a rare instance of coordinated G7 intervention since March 2011. The joint effort is seen as a response to Japan's weak yen environment, which has been contributing to rising import prices and weighing on JGBs.

The intervention appears to be significant, with reports suggesting that Tokyo alone may have sold around $80bn of USD/JPY over the past few days. However, it remains unclear whether US authorities have also been directly selling USD/JPY or simply checking rates in EUR/JPY and selling euros against the yen.

According to Reuters, Treasury Secretary Scott Bessent's handwritten notes referenced plans to purchase $5-10bn of yen, but the actual amounts deployed may be smaller. Unlike Japan, the US holds limited foreign exchange reserves, which means the signalling effect of intervention is likely to matter more than the volume of flows.

The success of this latest intervention effort will depend on whether US economic data soften sufficiently to prevent further Fed tightening. If the Fed hikes interest rates, it could continue to support a strong dollar and undermine efforts to strengthen the yen.