How coordinated currency buying interventions work
Coordinated currency intervention is a strategy where two or more governments buy an under-pressure currency simultaneously, thereby increasing market demand and signaling their commitment to reserve commitments, according to BofA Global Research. The most recent example of this was Japan and the U.S. collaborating to buy yen on July 31, with the immediate goal of pushing USD/JPY below 155, a level that had become a perceived floor after earlier Japanese interventions failed to break it.
Japan typically funds its yen purchases from its $1.3 trillion foreign-exchange reserve portfolio, which includes $162 billion in deposits and $929 billion in securities. Recent intervention may have exceeded ¥10 trillion over three trading days, requiring Japan to potentially sell securities, borrow against its Treasury holdings through the Federal Reserve’s FIMA repo facility, or use a combination of both approaches.
The U.S. Treasury can fund intervention through its Exchange Stabilization Fund, while the Federal Reserve can match Treasury operations, though it is not required to do so. Cooperation expands the perceived firepower beyond Japan’s reserves and signals possible follow-up through faster Bank of Japan rate increases or fiscal changes. Analysts lowered their year-end USD/JPY forecast to 149 from 152 after the intervention.
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