For the first time in 30 years: A joint Japanese-American move to strengthen the yen

The US and Japan acted together on Friday to curb the weakening of the yen, a move that strengthened the Japanese currency by more than 1% against the dollar and the euro during trading. A source familiar with the matter reported that Japanese authorities bought yen and sold dollars during trading in New York.

According to a report in 'Nikkei', the Japanese government and the Central Bank intervened in the foreign exchange market to buy the currency for the second consecutive day. The 'Financial Times' reported separately that the Federal Reserve Bank of New York sold euros on behalf of the US Treasury to buy yen. This is the first time in almost 30 years that Washington and Tokyo have acted jointly to support the Japanese currency, contrasting with previous independent interventions by the Central Bank of Japan.

The US Treasury did not immediately respond to a Bloomberg request on the matter, and the Japanese Ministry of Finance also did not provide comments. According to other sources, at least two large American banks were asked by the New York Fed to check the yen rate against the euro during the day.

The coordinated moves reflect a joint attempt to curb the weakening of the yen, which touched its lowest level since 1986 last week. Pressure on the currency stems from rising oil prices, Japan's ongoing budget deficits, and the wide interest rate gap compared to the US and other developed economies. Alex Loo, an economist at TD Securities in Singapore, noted that forex traders are expected to exercise caution ahead of possible further intervention.

On Thursday, the yen jumped by 3.3% following Japanese intervention, estimated at about 8.45 trillion yen (about 52.8 billion dollars), likely the largest single-day intervention ever by Tokyo. The wave of yen purchases pushed currency trading volumes to a nearly 12-year high, according to CME Group data. In volatile trading that ended the week, the yen strengthened by about 1.3% against the dollar, closing near the daily high at 157.28.

Expectations for further action increased after US Treasury Secretary Scott Bessent wrote on social media that the US and Japan "enjoy strong relations and close coordination." Earlier, Bessent told 'Fox Business' that the yen is "significantly undervalued" and that "excessive volatility" is not healthy for the markets.

The Central Bank of Japan chose yesterday to leave the interest rate unchanged at 1%, a decision expected by most economists surveyed by Bloomberg. In a briefing, Governor Kazuo Ueda did not provide significant new support for the currency, though he left open the possibility of future rate hikes without signaling a likely scenario. Strategists at Evercore ISI noted that without support in interest rate gaps, the impact of forex interventions is expected to be short-lived. Goldman Sachs estimated that while the intervention is not a sustainable solution, it may be effective in the short term, and Japan has sufficient foreign exchange reserves to maintain this policy for some time.