US and Japan Unite to Support Yen, Fears of 'Black Monday' Repeat Grow

The U.S. and Japan have joined forces for the first time in over 30 years to intervene in support of the yen, sparking fears of a repeat of the 'Black Monday' crash that hammered Asian markets in August 2024.

According to Bloomberg, Japan's government and the Bank of Japan intervened in the foreign exchange market on July 30, sending the yen surging as much as 3.3% during trading. The U.S. then joined in on July 31, with the New York Federal Reserve selling euros and buying yen on behalf of the U.S. Treasury.

The dollar-yen exchange rate had fallen to around 164 yen at one point late last week, its weakest level in 40 years, dating back to 1986, but recovered to the 157 level following the coordinated interventions.

Analysts warn that a sharp yen appreciation could trigger a broad unwinding of the yen carry trade, where investors borrow low-yielding yen to invest in higher-yielding assets. This could potentially replay the 'Black Monday' crash, which saw the Bank of Japan's surprise rate hike combine with U.S. recession fears sending the yen soaring and triggering a yen carry trade unwind.