US and Japan Unite to Support the Yen
Washington has joined forces with Tokyo to intervene in foreign exchange markets and support the yen. This marks the first coordinated G7 FX intervention since March 2011, following Japan's earthquake and tsunami.
The US and Japanese authorities have been jointly intervening to prop up the yen, but Tokyo appears to be remaining an aggressive seller of USD/JPY. The scale of the operation is significant, with reports suggesting that intervention on Thursday and Friday alone may have totalled close to $80bn, exceeding the scale seen in late April.
It remains unclear how much of this activity was driven by the US, but Treasury Secretary Scott Bessent's handwritten notes revealed plans to purchase $5-10bn of yen. However, the amounts deployed may prove smaller due to the limited foreign exchange reserves held by the US.
The success of the intervention effort will depend on whether US economic data soften sufficiently to prevent further Fed tightening, which could lead to a decline in USD/JPY to 158 by year-end and 152 by end-2027.