The United States joined Japan's effort to support the yen this week, marking Washington's first coordinated yen-buying intervention since 1998 and the Treasury's first foreign-exchange intervention since 2011. Japan's Ministry of Finance confirmed on Aug. 3 that it purchased yen in coordination with the US Treasury on July 31 to counter what it called excessive volatility and disorderly movements. According to Reuters, the Bank of Japan may have spent $58.97 billion during an initial intervention on July 31 and another $36.58 billion during a coordinated operation with the US on Aug. 1 — a total of almost $96 billion over two days.
How the yen and bitcoin moved
The intervention lifted the yen from a 40-year low near 164 per dollar to 155.20 on Monday, though it weakened to about 157.8 on Tuesday. Bitcoin fell to as low as $62,382 and touched a high of $64,163, later trading around $63,510. There was no clear evidence of a broad liquidation of leveraged carry trades, but the timing isn't great for risk assets. The Bank of Japan held its benchmark rate at 1% but indicated another increase could come as early as September. Japan's two-year government-bond yield briefly reached 1.545% on Monday, its highest level since 1995.
What a stronger yen means for Treasuries
Japan held $1.14 trillion of US government securities at the end of May, down from about $1.21 trillion one month earlier, making it the largest foreign holder of Treasuries. If further intervention requires large Treasury disposals, resulting sales could lower bond prices and push US yields higher. James Thorne, chief market strategist at Wellington-Altus Private Wealth, noted that if Tokyo must defend the yen, the Ministry of Finance may need to sell US Treasuries, causing the long end to reprice. Higher domestic yields in Japan could encourage Japanese banks, insurers, and pension funds to retain more capital at home rather than buying overseas bonds, weakening a major source of foreign demand for Treasuries.
Washington's calculus
The coordinated operation showed Washington viewed the yen's decline as a potential source of both financial-market instability and trade pressure. A weaker yen reduces the foreign-currency price of Japanese exports, giving Japanese manufacturers an advantage over US competitors. US Treasury Secretary Scott Bessent and Japanese Finance Minister Satsuki Katayama stated their governments remained prepared to intervene again. Bessent said: 'Treasury remains attentive and in close communication with our counterparts at MOF and BOJ. We will not hesitate to participate in further joint intervention.'
What could limit the bond-market pain
Japan could limit the immediate bond-market impact of future interventions by using the Federal Reserve's FIMA Repo Facility to raise dollars against Treasuries rather than selling them outright. Even without forced Treasury sales, more attractive domestic yields in Japan could reduce foreign demand for US Treasuries. The Bank of Japan's next rate decision is expected in September, and markets will be watching closely to see whether Tokyo taps the FIMA facility or goes straight to selling.
