Yen Intervention Fails Without BOJ Hike: Experts

The US Treasury and Bank of Japan coordinated a yen intervention in August 2026, with the goal of stabilizing the currency. The operation was unusual, as Washington sold euros instead of dollars to fund its share, and Tokyo tapped the Federal Reserve's FIMA repo facility rather than selling Treasuries. Brad Setser, a former US Treasury official who championed the FIMA facility, told the Odd Lots podcast that the intervention can succeed only if the Bank of Japan raises rates in September.

According to Setser, the yen has overshot any fundamental anchor and is 'insanely weak' at 160 per dollar. This level is equivalent to 1960s real levels on a Big Mac basis. He argues that the yen's weakness is driven less by speculative carry trades than by hedging flows from real-money investors.

Setser rejects the fiscal-dominance story, stating that Japan's fiscal position is stronger than the US'. The real structural imbalance, he claims, is Japan's government being the largest unhedged foreign investor in its own economy and having yet to repatriate capital gains on overseas assets. The market's drift back toward 160 shows intervention alone cannot reset the trade; a BOJ hike or Japanese capital coming home are necessary catalysts.

The FIMA facility, which allows foreign central banks to post US Treasuries at the Fed and receive dollars, is a key part of the operation. Setser pushed for this tool inside the Treasury and publicly championed it in 2020. Japan's alternative would be selling Treasuries directly, adding pressure to the US long-end.