Intervention

Ichiro Suzuki

At the end of July, Japan’s Ministry of Finance intervened in the foreign exchange market to buy the yen. The Japanese authorities have been nervous about its currency since the fall of 2022, the first year of the yen’s historic slide. An intervention was much expected among market participants. What was not expected was participation by the U.S. Treasury Department. It was revealed that the Treasury sold the euro and bought the yen, the day after the BOJ’s move. It was the first joint intervention since March 2011 when the yen surged from already very overbought levels, following a mega earthquake that hit Japan’s northeastern region. Back then, the market bought the yen on a speculation of repatriation of capital to fund reconstruction.

Fundamentally, Japan’s macro economic policy mix of loose fiscal and not tight enough monetary policies has been exerting downward pressure on the currency. The level of the yen at 160 or weaker to the dollar, however, is politically untenable. Prime Minister Sanae Takaichi wants to be seen as being concerned about a weak currency’s adverse effect on inflation. In the U.S., the Trump administration is wishing to alleviate the dollar’s strength despite its economy that is more resilient than those in Europe and Japan. Reducing trade deficits have been high on the list of the 47th President. Their interests have converged to justify a joint market intervention. Then the Treasury Department said that they were worried about weak yen’s contagious effects on other Asian currencies. This was the reason behind the 1998 joint intervention near the end of the Asian Financial crisis. This contagion concern obviously is an excuse for a politically motivated action. The AFC was a staggering high volatility global event that threatened stability in the developed world. In contrast, the yen has been falling in a rather steady and measured fashion, and only the BOJ’s interventions have made volatility jump the last four years. Treasury Secretary Scot Bessent in his former job of hedge fund manager might have taken a polar opposite action of shorting the yen. 

The current U.S. administration has made a joint intervention in the foreign exchange market in October 2025. The Treasury Department bought the Argentina pesos to support President Javier Milei who rose to the helm in the late 2023 election. President Trump had a reason to rescue Milei. He is a MAGA ally. Milei tried to turn around the perennially descending Argentina economy by overhauling the system. Since he needed to stem the ARS’s perpetual decline to lift the economy, the Treasury stepped into the market to assist him. Highly conservative Takaichi is also is also Trump’s ideological ally. On his visit to Japan last November, they hit it off. Trump agreed to lend a helping hand to Takaichi when she was in trouble. It’s good for U.S. exports, at least on the surface. 

Contagion seemed more likely in the long-end of the bond market rather than foreign exchange market. A weaker yen has been contributing to rising yields of Japan’s ten-year government bonds. It is now approaching 3%, way up from zero just a few years ago though it is still lower than those in other countries. Treasury Secretary Bessent is deeply concerned about higher borrowing costs for the U.S. If there was a rational for a joint intervention, it was keeping Treasury note’s yield in check by helping stabilize that of Japan. Bessent also pressed Japan for rate hikes at a faster pace, which Takaichi doesn’t like. 

Though people think that the U.S. cooperated in order to keep Japan from selling U.S. Treasury notes to fund the intervention, this is questionable. In the past interventions, the Ministry of Finance made sure to sell short duration securities and not the ten-year notes in order to minimize its effect on the long-end of the yield curve. Vice Ministers of Finance for International Affairs is always extra cautious so as not to upset the ally. 

So the Treasury Department stepped into the foreign exchange markets to buy the yen. This joint intervention, however, had engineered a mere 4% rise of the yen. As the market became relieved of a fear of continuing aggressive interventions, traders began to sell the yen again slowly. In a few weeks, the yen lost half of what it gained. The market’s relatively muted response on the yen was a sharp contrast to the Argentina peso, which rose sharply after the 2025 intervention, halting a long lasting trend of relentless decline. The two countries’ macro economic policies have made a difference on movement of currencies between the two concurrencies, Milei was determined to turn around Argentina’s chronically woeful fiscal conditions, by aggressive spending cuts. Almost miraculously, he improved public finances dramatically, by achieving primary balance, that is balanced revenue and expenditure excluding interest payment burden on government debts. In contrast, Takaichi scrapped the goal of balancing the budget in order to go for loose fiscal policy. She advocates “responsibly aggressive fiscal policy” with her belief that the Japanese economy’s lackluster performance over the past few decades was attributed to insufficient investments. While her diagnosis is in part correct as far as growth potential of the economy is concerned, she can’t have a strong currency while running loose monetary and fiscal policies. The market responded to the intervention accordingly. The market gave a cold shower to the yen. 

Despite oft-shared speculations, the foreign exchange markets have grown too large even for the largest holder of the Treasury securities to make a lasting impact with its divestiture of a part of its position. Since the days of the Plaza Accord in 1985, the foreign exchange markets have grown exponentially, in part with the rise of derivatives, far beyond a single player’s ability to cause a stir. For the Argentina peso, it’s a different story. The ARS is a fringe currency whose direction can be bent by a determined player’s actions. Secretary Bessent must be well aware of this, but he still had to do it. 

About the author: Mr. Suzuki is a retired banker based in Tokyo, Japan.