US and Japan Unite to Defend Yen in Rare Joint Intervention

Japanese authorities recently intervened in the foreign exchange market to defend the yen against further weakness. This rare move was notable because it marked the first time since 1998 that the United States had participated alongside Japan in a joint currency intervention.

The Bank of Japan has been hesitant to raise interest rates aggressively, fearing the impact on the economy and its massive public debt. As a result, Tokyo has relied increasingly on selling dollars and buying yen through interventions.

However, with the yen sliding past the 160-per-dollar level, Washington apparently decided that this was no longer just Japan's problem. A collapsing yen can amplify the incentive for the 'yen carry trade,' which involves borrowing cheaply in yen to fund purchases of higher-yielding assets elsewhere, including US equities and bonds.

The joint intervention signals that both governments view current currency levels as genuinely disruptive rather than merely uncomfortable. If it succeeds in stabilizing the yen without Japan being forced into rapid rate hikes, it removes one source of global market volatility.