Washington Joins the Fight for the Yen

Daily Currencies Ratings — 04/08/2026

Reports over the weekend indicate that US and Japanese authorities have conducted a joint intervention to support the yen, marking a significant escalation in efforts to stabilize the currency.

What Happened?

This represents the first coordinated G7 foreign exchange intervention since March 2011, when authorities acted in response to Japan's devastating earthquake and tsunami. It is also the first joint US-Japan yen-buying operation since June 1998, when USD/JPY was approaching 150 during the Asian financial crisis. The closest historical parallel for a non-crisis-driven coordinated currency action remains the 1985 Plaza Accord, when G5 nations jointly agreed to depreciate an overvalued dollar — an effort that succeeded in shifting the dollar lower over a multi-year horizon.

Tokyo appears to have continued as an aggressive seller of USD/JPY. Intervention conducted on Thursday and Friday alone may have totaled close to $80 billion, exceeding the scale of operations seen in late April. Japan's foreign exchange reserves, at approximately $1.2 trillion, provide substantially more capacity than the roughly $38 billion available to US authorities — though even Japan's reserves are finite against sustained market pressure. Further intervention may have been carried out on the day of reporting.

On the US side, reports suggest the Federal Reserve was checking rates in EUR/JPY and may have been selling euros against the yen. However, it remains unclear whether US authorities have also been directly selling USD/JPY, and questions persist regarding the scale of American participation.

Reuters published a photograph of Treasury Secretary Scott Bessent's handwritten notes referencing plans to purchase $5–10 billion of yen. In practice, the amounts deployed may prove smaller. Unlike Japan, the US holds only limited foreign exchange reserves, meaning the signalling effect of intervention is likely to matter more than the volume of flows.

The US holds roughly $38 billion in foreign currency reserves, split broadly evenly between the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA). Approximately 70% of those reserves are held in euros, with the remainder invested in yen-denominated assets.

Why Now?

Joint intervention has not come as a complete surprise. The Federal Reserve did check the USD/JPY rate back in January. Bessent has been supportive of Japanese intervention for some time and has acknowledged that the yen is very undervalued.

Washington may have concluded that Tokyo needed assistance with supporting the yen, given that April/May's $70 billion in FX sales had failed to prevent USD/JPY from trading to a new high of 164. That yen weakness was seen as contributing to Japan's 30% year-on-year increase in import prices, which in turn weighed on JGBs.

In the rates space, investor nervousness about Japan has been mounting since the start of the year. The 10-year JGB is trading at its highest yield since the 1990s, with momentum clearly pointing toward further increases. This is not solely an inflation story — real rates rose more rapidly over the past year than break-evens.

Investors are also increasingly demanding a risk premium to hold JPY rates, adding upward pressure on 10-year JGB yields. The slopes (in 2-year forwards) of most G10 currency swap curves tend to trade very closely together, especially in recent years. The JPY curve stands as the exception, with its much steeper profile indicating that investors are demanding a higher return for exposures to Japanese rates.

The widening US-Japan rate differential has also reinforced the yen's longstanding role as a favored funding currency for carry trades, in which investors borrow in low-yielding yen to purchase higher-yielding assets elsewhere. This dynamic compounds downward pressure on the currency whenever rate spreads widen, and helps explain why yen weakness has proven so persistent even in the face of repeated unilateral intervention.

Whether Washington felt that the JGB sell-off was undermining Treasuries remains an open question. While the higher risk premium of JPY does not immediately trigger large spillovers to markets abroad, the selling of US Treasury holdings by Japan would pose a more material risk. Japan is one of the largest foreign investors in US government debt, with holdings of approximately $1.1 trillion.

Reports have emerged that Japan could use the Federal Reserve's FIMA repo facility to raise intervention dollars against its Treasury collateral, rather than selling those securities outright. However, the single counterparty limit there is $60 billion, which could be quickly consumed.

Historical flows data show that Japanese investors tend to purchase US Treasuries when relative FX-hedged yields are attractive. With a steeper JPY curve, the relative value shifts away from USTs in favor of JGBs. Given that the record US deficit is unlikely to be addressed in the near term, foreign buyers will need to play an important role in preventing UST yields from breaking higher.

Will the US Seek Broader G7 and G20 Support?

For now, intervention remains a bilateral US-Japan operation. A more powerful signal would come from broader G7 or G20 backing. The next opportunity arrives at the G20 Finance Ministers and Central Bank Governors meeting in Asheville, North Carolina, scheduled from 31 August to 1 September, where Washington could seek wider endorsement for efforts to stabilize the yen.

The prospects for securing explicit multilateral support appear low. Many G20 members are likely to view yen weakness not as a case of market dysfunction, but as the consequence of Japan's own policy mix. Loose fiscal policy, still-accommodative monetary settings, and the Takaichi government's growth agenda have all contributed to a weak yen environment. Against that backdrop, other countries may be reluctant to commit political capital or market credibility to a coordinated campaign to strengthen the currency.

A formal G20 statement backing yen appreciation would also be difficult to reconcile with the longstanding G20 principle that exchange rates should be market-determined. While policymakers may endorse efforts to address excessive volatility or disorderly market conditions, explicit support for a stronger yen faces a considerably higher hurdle.

A New Era of US FX Activism?

Confirmation of US Treasury purchases of yen would come less than a year after Washington's intervention to support the Argentine peso. In October 2025, the Treasury extended a $20 billion ESF-backed swap facility to Argentina and subsequently used the Exchange Stabilization Fund to help stabilize the peso ahead of the country's mid-term elections. Argentina ultimately drew approximately $2.5 billion from the facility and repaid the amount in full before year-end.

Taken together, the Argentine and Japanese episodes suggest a Treasury that is becoming more willing to use the ESF in support of broader economic and geopolitical objectives. This marks a notable departure from the relative passivity that has characterized US foreign exchange policy for much of the last two decades, and more fundamentally, a break from the "strong dollar" posture articulated by Treasury Secretary Robert Rubin in 1995 and nominally maintained by every successive Treasury secretary since.

The comparison should not be overstated. Argentina was facing an acute balance-of-payments challenge and severe pressure on its currency, whereas Japan remains one of the world's largest creditor nations. Washington's willingness to support the yen reflects a view that the currency has moved substantially below levels justified by economic fundamentals — a perspective shared by ING, which agrees with Bessent's assessment that the yen remains materially undervalued.

Will Intervention Succeed?

With his long experience in currency markets, Bessent will appreciate that macroeconomic fundamentals ultimately dominate exchange rates. FX intervention can smooth disorderly market conditions and alter market psychology at the margin, but its primary function is typically to buy time rather than engineer a lasting shift in trend.

Japan's intervention campaign in the summer of 2024 illustrates this principle. Those operations proved effective not because of their size alone, but because they coincided with a genuine turn in the US rate cycle, as softer economic data paved the way for three 25-basis-point Federal Reserve rate cuts later that year.

The same lesson applies today. The success of this latest intervention effort will depend less on the volume of yen authorities purchase and more on whether US economic data soften sufficiently to prevent further Fed tightening. That remains ING's central view and underpins its forecast for USD/JPY to decline to 158 by year-end and 152 by end-2027.

Those anticipating an aggressive Bank of Japan tightening cycle to reinforce yen strength may be disappointed. The Takaichi government's emphasis on growth suggests the BoJ will remain cautious in withdrawing accommodation. In ING's view, more promising support for the yen could come from policies designed to redirect domestic savings back into Japanese assets.

Developments around NISA (Nippon Individual Savings Account) merit close attention in this regard. The 2024 NISA reforms encouraged substantial retail investment into overseas equities, contributing to persistent capital outflows and a weaker yen. Any future adjustments that broaden the appeal of domestic assets, including greater access to instruments such as JGBs, could help reverse some of those flows.

Ultimately, intervention can create an inflection point, but it cannot overturn fundamentals. A sustained move lower in USD/JPY will require narrower US-Japan rate differentials and a softer US economic backdrop. Without that, even coordinated intervention risks being remembered as another attempt to slow the dollar's rise rather than reverse it.

Source: ING via Hellenic Shipping News