US Sells Euros to Support Yen in Unconventional Move

The United States made an unusual move when it joined Japan in defending the Yen: selling Euros rather than US Dollars. This decision was deliberate, aimed at supporting the Yen without signaling a broader devaluation of the Dollar or adding fresh inflation pressure.

The Federal Reserve's credibility has already been under scrutiny due to high US inflation rates above target. Selling Dollars for Yen would have sent a stronger message that Washington wanted the US currency to weaken, which was a signal officials were keen to avoid.

Analysts at MUFG noted that Washington's role in the intervention was mainly symbolic, with Japan believed to have bought tens of billions of Dollars' worth of Yen. The importance of the US taking part is more symbolic, intended 'to send a stronger deterrent to speculative Yen sellers', according to MUFG.

The Euro sale also protected the US Treasury market by preventing repeated Japanese intervention from forcing Tokyo to sell US government bonds to raise Dollars. Japan plans to use the Federal Reserve's FIMA repo facility instead, allowing it to borrow Dollars against its Treasury holdings rather than selling them outright.