US-Japan Intervention Sends Yen Sharply Higher
For the first time in 30 years, the US and Japan coordinated an intervention to strengthen the yen. The shock sent the currency sharply higher on August 3rd, with the dollar-yen rate trading around 158.4 yen in the afternoon.
The intervention was carried out under a joint statement by finance ministers released in September last year. According to Bloomberg, the dollar-yen rate had climbed to near 164 yen at the end of July before the intervention, but fell into the 156-yen range after, only to rise and retrace about half of its decline.
The total value of the intervention was approximately 13.7 trillion yen, according to Shinhan Investment & Securities. The US Federal Reserve Bank of New York executed transactions on behalf of the US Treasury to sell dollars and buy yen, while the Bank of Japan also bought yen for two straight days.
Market participants are concerned that a 'yen CARRY trade unwind' could spread across financial markets, as short positions betting on a weaker yen have swelled to levels seen just before the 'yen CARRY trade unwind' in July 2024. However, some analysts believe that the market impact will be limited due to smaller CARRY trade funds compared to 2024.