US-Japan Yen Rescue Rocks Markets with Unprecedented Euro-Funded Financing

The US and Japan have intervened in foreign exchange markets for the first time since 1998 to support the yen, which had fallen to a multi-decade low of 163.73 per dollar on Thursday.

The joint operation involved selling euros to buy yen, rather than using dollar reserves as is customary in such interventions.

This unprecedented financing method has drawn criticism from economists, who argue that it will add liquidity to already frothy markets and could have unintended consequences.

Louise Loo, head of Asia economics at Oxford Economics, said the US participation may be motivated by a desire to protect the US Treasury market: 'There is a self-preservation element here. Volatile markets driven by potentially fiscally-aggressive policies from Japan could extend to the US Treasury markets, destabilizing the dollar.'

The yen rebounded to 157.57 per dollar after the intervention, but the unusual financing method has raised questions about its long-term effectiveness.