How a US-Japan pact to hit yen speculators came together
For Japan, a weak yen fans import prices; for the US, it blunts the trade advantage from tariffs.
In a rare joint effort, the United States and Japan collaborated to combat speculative bets against the yen, leading to a significant intervention in July 2026. For Japan, a weak yen has driven up import prices and caused cost-of-living issues for governments, including Prime Minister Sanae Takaichi's administration. Meanwhile, a weak yen undermined the trade advantage gained from President Donald Trump's tariffs and threatened to push up Japanese government bond yields, which could have spillover effects on US Treasury yields.
The shared concerns over the yen's decline fostered more frequent and private conversations between US Treasury Secretary Scott Bessent and Japanese Finance Minister Satsuki Katayama, with 10 such talks held by early August. The May meeting, in particular, was extensive, lasting three and a half hours, including a dinner discussion.
US involvement in yen-buying interventions was considered as early as January, following a New York Federal Reserve's rare rate checks to aid Tokyo in its battle against the yen's decline. Despite Japan's past unilateral efforts to stabilize the currency failing, the US Treasury Secretary's verbal support gave Japanese bureaucrats a new tool in their fight.
US participation in yen-buying intervention was discussed as early as January, and the New York Federal Reserve made rare rate checks to help Tokyo combat the declining yen. The May meeting between Japan and the US saw extensive discussions about exchange rates, with Finance Minister Katayama stating that the two nations had been coordinating closely on foreign exchange.
However, Japan's efforts to stabilize the currency have been hindered by the Bank of Japan's (BOJ) slow pace of interest rate hikes, which fell short of addressing inflation. To overcome this, Japan's top currency diplomat Atsushi Mimura shifted tactics, focusing on behind-the-scenes work with US counterparts instead of daily verbal warnings against speculators.
The need for intervention intensified in July when concerns over Prime Minister Takaichi's fiscal and monetary expansion drove the yen to a four-decade low, pushing up import costs and hurting the administration's approval ratings. The US administration was also grappling with rising inflation and Treasury yields, further motivating support for Japan's efforts.
The US Treasury's semi-annual currency report on July 24 echoed Tokyo's warning against excessive yen volatility and pledged continued close consultations on exchange rate matters. Both the US Federal Reserve's and BOJ's policy meetings in late July were seen as potential vulnerable windows for the yen as investors positioned themselves based on cues from both central banks about future rate hikes.
Japan's intervention campaign was closely coordinated with the BOJ, with Mimura giving the green light to buy yen for US dollars in the late evening of July 30. The move, which occurred amid the BOJ's policy meeting, immediately strengthened the yen, moving it from around 162.8 to 157.8 per US dollar. When the yen started sliding back down towards 158, Mimura reportedly said, "Yes. Let's congregate tomorrow."
Written by urgent.news from Straits Times Business's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
