US Treasury Buys Yen, Weakening Dollar in Latest FX Intervention

The US Treasury's intervention in the foreign exchange market on July 31 was unusual and may have been motivated by several factors, including a desire to weaken the dollar and reduce the trade deficit.

The Treasury bought Japanese yen, which had weakened to a 40-year low of almost 164 against the dollar. This move marked Washington's first intervention in the FX market since 2011 and its first yen-buying intervention since 1998.

Treasury Secretary Scott Bessent gave currency traders at several banks advance notice that the Treasury might intervene, removing an element of surprise. The Treasury also funded these yen purchases via a third currency, euros, rather than US dollars.

Bessent's decision to buy Japanese yen may have been influenced by his desire to prevent extreme weakness in the yen from spilling over into global assets and potentially requiring an even bigger response from authorities.