US and Japan Use Euro Sales to Support Yen, Avoid Disrupting US Bond Market

The US and Japanese authorities have revealed a rare currency operation where they jointly moved to arrest the yen's slide. Washington financed its recent intervention by selling euros rather than US Treasurys, aiming to avoid disrupting the highly sensitive market for American government debt.

This approach underscores the delicate balancing act facing policymakers who need to raise dollars for large-scale intervention without triggering unwanted swings in US yields. By tapping euro holdings, officials sidestepped the risk of pushing yields higher and unsettling the world's benchmark bond market.

The coordinated action between Tokyo and Washington came after the Japanese currency weakened sharply against the dollar, prompting a brief intervention that sent the yen to a three-month high. Although the yen slipped modestly in subsequent trading, it retained most of its gains secured during the intervention.