US and Japan Team Up to Support Yen Amid Rate Hikes

Washington and Tokyo have taken joint action to support the Japanese yen, which has been under pressure from higher US interest rates, rising oil prices, and persistent capital outflows. The intervention is a rare move that comes after the yen slid to its weakest level in decades, hitting 163.24 per dollar last month. According to the Financial Times (FT), the Federal Reserve Bank of New York sold euros to buy yen on behalf of the US Treasury, with Goldman Sachs and Morgan Stanley facilitating the transactions.

The move is estimated to have totaled around 8.45 trillion yen ($52.8 billion), although some analysts put the amount at between 6 trillion and 7 trillion yen. The intervention marks the first coordinated US-Japan effort to support the yen since 1998, with markets increasingly betting that the US Federal Reserve could hike rates again before the end of the year.

The wide gap in interest rates between Japan and other major economies has encouraged investors to engage in a 'carry trade', borrowing cheaply in yen and investing in assets outside Japan with better returns. This has resulted in capital outflows and downside for the yen, which is now trading at 160.53 against the dollar.