The dollar opened the week in retreat. On Monday morning it briefly slipped under 156 yen, down from the upper 157 level in New York and from 160 in Tokyo on Friday, after the two governments confirmed they had bought yen together late last week. The move was the first coordinated currency intervention between Tokyo and Washington in fifteen years, and the man in charge of Japan’s currency policy made clear it would not be the last.
The drop was the market’s first full session of trading since the intervention was confirmed, and it showed both the power of the move and its limits. The dollar fell, but it did not collapse. By mid-morning Tokyo time it was trading around 156.13, a solid gain for the yen but far from the levels the currency held before its long slide.
The confirmation that moved the market
The intervention itself happened Friday, but the confirmation came in stages. Over the weekend, President Trump said the United States had helped Japan support the yen as a signal of friendship. On Monday, Tokyo’s finance ministry made it official: Japan and the U.S. Treasury bought yen jointly on Friday, the first time the two had acted together since 2011, when they sold yen in tandem after the earthquake and tsunami that devastated eastern Japan.
Japan’s top currency bureaucrat, Atsushi Mimura, went further than the usual script. He promised to keep acting to dampen wild swings in the currency, and he described the operation as the completion of a U.S.-Japan currency alliance, suggesting the two countries would work as one if necessary. The language was remarkable for a relationship that has spent years accusing each other of manipulating currencies.
What the numbers show
The intervention was large by any measure. Figures from the Bank of Japan point to Tokyo spending roughly $58.97 billion on Thursday alone, before Washington joined the effort on Friday. Analysts cited by the Financial Times put the joint operation at about 8.45 trillion yen, some $52.8 billion, while Japan’s Nikkei business daily estimated 6 to 7 trillion yen. The yen had slid to 163.24 per dollar last month, its weakest level since 1986, driven by higher U.S. interest rates, rising oil prices, and persistent capital outflows.
The immediate effect was a sharp rebound. The yen firmed from the 164 area to the lower 157 range by the end of Friday, and Monday’s confirmation extended the move. But the intervention also came with a cost visible in Tokyo’s stock market: the Nikkei opened lower and was down about 2.1 percent by mid-morning, with exporters such as automakers among the biggest decliners. A stronger yen is good news for Japanese households paying import bills, and bad news for companies that sell abroad.
The limits of the tool
The pattern is familiar. Japan intervened to buy yen in April and May, and the effect faded within weeks. The Bank of Japan raised its policy rate to 1 percent in June, the highest level in thirty-one years, and the yen kept falling anyway. Each intervention buys time, and time is running out in a different way: the yen’s weakness is pushing up import prices and inflation, which is hitting households and weighing on Prime Minister Sanae Takaichi’s approval ratings.
The question now is whether the joint operation changes the calculus. Mimura’s language about a currency alliance suggests Tokyo believes it has a partner this time, not a bystander. Washington’s participation was the first yen-buying intervention with the United States since 1998, nearly three decades ago, and it carries risks for the Americans: buying yen means selling other currencies, and it ties the Treasury’s reputation to the yen’s fate.
Tokyo has warned it will not hesitate to intervene again. The market, which has heard that warning before, will be watching to see whether the next move is as big as this one, and whether Washington is still holding the other end of the rope. The dollar’s slide on Monday was a message. The question is who sent it, and who will be there the next time the yen needs saving.
Source
- Kyodo News: Dollar falls sharply vs. yen amid warnings of further intervention
- Reuters: Japan, US confirm joint yen-buying intervention, signal more to come
- The Japan Times: Japan confirms joint yen intervention with U.S., signaling readiness for more action
- Morningstar/Dow Jones: U.S., Japan Intervene to Boost Yen for First Time Since 1998