U.S. Treasury intervenes to support yen for first time since 2011

The U.S. Treasury intervened in currency markets on Friday to support the Japanese yen through outright purchases, the Financial Times reported, marking Washington's first direct action to prop up the currency since 2011 and a rare instance of coordinated intervention with Tokyo.reuters+1

The Federal Reserve Bank of New York conducted a sale of euros to buy yen on behalf of the Treasury through Goldman Sachs ↘ 0.63% and Morgan Stanley ↗ 0.17%, according to the FT, citing people familiar with the matter.aol

A Coordinated Effort

The intervention came after the yen had struck a 40-year low earlier this month, prompting Japan to act first. The yen strengthened as much as 3 percent on Thursday, with traders and analysts saying they believed Tokyo had intervened to support the currency. Japan may have sold as much as $58.97 billion to buy yen on Thursday, central bank data indicated on Friday.ft+1

Earlier on Friday, the U.S. Treasury informed a number of banks that it might intervene in the yen market and that they should "stand ready for future action," a source familiar with the matter told Reuters.aol

A Reuters photo of Treasury Secretary Scott Bessent's notepad during a cabinet meeting at Camp David showed he was contemplating purchases of $5 billion to $10 billion worth of yen, with the handwritten words: "To Do" followed by "Buy Japanese Yen (JPY) $5-10 bil."aol

Bank of Japan Signals Faster Rate Hikes

The intervention coincided with hawkish signals from Bank of Japan Governor Kazuo Ueda, who said the central bank will ensure it does not "fall behind the curve" and could accelerate rate increases. The BoJ held interest rates at 1 percent on Friday, as expected, but Ueda said "it is entirely possible that it could accelerate the pace of interest rate increases" depending on inflation developments.ft

Japan's vice-minister of finance for international affairs, Atsushi Mimura, said: "We understand that we are receiving support from the US authorities that goes beyond mere moral support. We have been in constant contact with them."ft

Market Outlook

Following the news, the dollar dropped from about 158.9 yen to about 157.6 yen in late Friday trading — a decline of about 0.8 percent. Osamu Takashima, foreign exchange strategist at Citigroup ↗ 0.10% in Tokyo, said it was unlikely the yen would weaken back to 164 per dollar "in the very near term" because the U.S. appeared willing to help Japan defend its currency.aol+1

The last time the Treasury directly supported the yen was in 2011, when it coordinated with fellow G7 nations to stabilize markets after Japan's earthquake and tsunami disaster.aol