The United States joined Japan last week in an intervention designed to halt the yen's depreciation—the first coordinated action in the Japanese currency in 15 years. The move featured a rare approach from the U.S. Treasury: utilizing a Federal Reserve repo facility to sell euros rather than dollars.
Treasury Secretary Scott Bessent opted for euro sales to support the yen, departing from the traditional playbook of selling U.S. dollars. The intervention ran through a little-known Federal Reserve repo facility, adding an operational wrinkle to an already atypical coordinated action.
The intervention followed a sustained decline in the yen, which had reached a 40-year low. That weakness prompted the collaborative effort between the two nations, with the primary objective of reversing the currency's slide.
Brad W. Setser of the Council on Foreign Relations explained the economic rationale: a depreciating yen encourages global firms to invest in Japan, diverting investment away from the United States. A political dimension also shaped the timing—Setser told TIME that President Trump's support for a stronger yen, influenced by figures like Takaichi, played a role. Takaichi had publicly advocated for yen appreciation.
Setser offered a counterpoint on the primary driver of yen pressure. The pressure stemmed from adjustments to hedge ratios on existing portfolios, he said—not from strong demand for U.S. bonds.
Japan's typical intervention strategies center on specific bond market actions: using proceeds from a bond portfolio with high quarterly roll-off, or selling the belly of the curve by offloading two-year and five-year bonds.
Whether this joint, unconventional intervention can durably arrest the yen's 40-year slide will be determined by market reactions and whether the structural shift in global investment patterns that drove the weakness has actually changed.
