US Joins Yen Defense with Euro Swap

The United States joined Japan's currency defense last week by buying yen on behalf of the U.S. Treasury, but it paid for it in euros rather than dollars. According to reports from the Financial Times and Reuters, the New York Fed bought yen without selling dollars to fund the purchase, instead using a sale of euros routed through Goldman Sachs and Morgan Stanley.

The operation was confirmed by Japan's Ministry of Finance as an action against disorderly moves in the yen, citing a joint statement from the Japanese and U.S. finance ministers. The USDJPY chart showed that the yen fell to 163.73 per dollar on Thursday, July 30, its weakest level in nearly four decades.

The size of Washington's contribution is unclear, with neither government disclosing the amount, but a Reuters photograph of Treasury Secretary Scott Bessent's legal pad during a Cabinet meeting at Camp David showed 'buy Japanese yen' with an estimated range of $5-10 billion. The yen recovered to 157.57 by Friday's close and traded around 156.49 on Monday.

Selling dollars would have pushed the dollar down, weighing on the US Dollar Index, but selling euros achieves the same result without affecting the dollar. Japan is the largest foreign holder of U.S. Treasuries, with about $1.19 trillion in holdings as of March 2026, roughly 13% of all foreign-held U.S. federal debt.

Bessent framed the operation as support for correcting what he called the yen's 'substantial undervaluation' and repeated his call for further Bank of Japan rate hikes. However, this contradicts the Takaichi government's fiscal expansion, which weakened the yen in the first place.