US and Japan Stage Joint Yen Intervention

On August 3rd, the US and Japan confirmed their first joint intervention since 2011 to prop up the yen from recent 40-year lows. The Bank of Japan had delayed an interest rate rise last week due to a earthquake in the country, and Tokyo and Washington may have been concerned about its impact on the currency.

The two governments pledged to repeat the action as necessary after selling almost $60 billion to support the yen. Scott Bessent revealed that US plans to spend between $5 billion and $10 billion. The intervention has arrested a slide that took the yen to 40-year lows last week, but its success is being questioned.

The move may be aggravating US bond yields on the assumption that Japan could liquidate Treasuries to raise dollars. However, Bessent noted that a Fed repo facility using Japan's bond holdings as collateral was activated. Meanwhile, the US-Japan trade deal has raised speculation about how Japan will finance hundreds of billions in investments pledged.

The yen strengthened further on Monday after the intervention, briefly hitting its best levels since early May. The currency is up around 4% against the dollar since Japan's first action on Thursday. Asia markets started the week in the red, with South Korea's KOSPI sliding over 5% after a record rally last Friday.