Japanese media reported that the yen hit a two-and-a-half-month high against the U.S. dollar after Japan intervened in the foreign exchange market for the second consecutive day. According to reports, the U.S. Treasury Department notified several banks on Friday that it might intervene in the yen market that day and asked them to prepare for follow-up actions. The New York Fed requested at least two major U.S. banks to provide quotes on the yen exchange rate—a move widely seen as a precursor to intervention. Japan’s top currency official declined to comment but noted that Tokyo had received support from Washington beyond mere moral backing. Bessent stated that the U.S. Treasury maintained close coordination with Japanese authorities, and recent remarks by him indicated a stronger willingness to cooperate on intervention.
Japan’s latest foreign exchange market intervention may have been confirmed.
According to Bloomberg’s analysis of Bank of Japan account data, the Japanese government may have intervened in the foreign exchange market on Thursday—this week’s trading day—buying yen and selling dollars, with an estimated intervention size of approximately JPY 8.45 trillion (about USD 52.8 billion). During early U.S. trading hours on Thursday, the dollar-yen exchange rate plunged nearly 500 pips in under an hour, briefly dipping below the 158 level, posting a daily decline of 3.3%—its steepest single-day drop since December 2023.
If confirmed, this move would not only mark Japan’s first foreign exchange intervention since late April during the Golden Week holiday but could also approach the record for the largest single-day intervention in Japan’s history, underscoring Tokyo’s heightened resolve to defend the yen.
Japanese authorities have not yet confirmed the intervention, but market speculation is intensifying. On Friday, Finance Minister Satsuki Katayama declined to comment, while Junichi Murakami, Japan’s top currency official and Vice Minister of Finance, stated he had “nothing to add,” though he noted that Japan has received support from the United States that goes “beyond mere moral backing,” further fueling market speculation about possible coordinated action between the U.S. and Japan.
Ahead of U.S. stock market trading on Friday, Reuters reported, citing informed sources, that the U.S. Treasury had notified several banks it might intervene in the yen market on Friday and instructed them to “prepare for follow-up actions.”
By midday in U.S. trading, Bloomberg reported, citing informed sources, that the Federal Reserve Bank of New York had asked at least two major U.S. banks on Friday to provide quotes for the euro-yen exchange rate. A representative for the New York Fed declined to comment on the report.
At the open of U.S. trading on Friday, Treasury Secretary Bessent posted on social media that the U.S. Treasury maintains a “strong relationship and close coordination” with the Japanese government, though he did not confirm rumors regarding preparations for foreign exchange intervention. The post stated that under the leadership of Prime Minister Sanae Takaichi, Bank of Japan Governor Kazuo Ueda, and the BOJ Policy Board, Japan’s economy continues to perform well, demonstrating their firm commitment to preserving monetary and financial stability.
During Friday’s midday trading session in U.S. equity markets, the dollar fell below 158.20 against the yen, down nearly 0.9% on the day. After U.S. market hours, the yen strengthened further, pushing the dollar below 157.60 and reaching a new intraday low for the past two and a half months—surpassing the previous low set on Thursday when the yen surged more than 3% during the session. Post-market, Nikkei reported that the Bank of Japan and Japanese government agencies had purchased yen for the second straight day to intervene in the foreign exchange market.
U.S. Currency Inquiries Seen as Precursor to Intervention; Bessent’s Recent Remarks Signal Greater Willingness to Cooperate
It remains unclear what form of intervention the U.S. Treasury might pursue. Since 2013, the Federal Reserve has maintained standing U.S. dollar liquidity swap lines with the Bank of Japan and four other major central banks.
Reuters noted that Junichi Murakami indicated on Friday that the United States participated in efforts to curb the yen’s depreciation, including conducting so-called “currency inquiries”—requests to dealers for indicative quotes on the dollar-yen exchange rate—a practice typically viewed as a precursor to intervention.
Lee Hardman, currency strategist at Mitsubishi UFJ Financial Group, said the aforementioned Reuters report “aligns with market perceptions that the New York Fed has been conducting currency inquiries, heightening market participants’ anxiety about potential further intervention. This certainly reinforces the view that intervention risk is present in the market.”
Bloomberg noted that Bessent told U.S. media on Thursday evening that the yen is “significantly undervalued,” and that “excessive volatility” is detrimental to market health. Nobuyasu Atago, a former Bank of Japan official, commented on this, saying, “Bessent’s influence cannot be underestimated. The United States is currently showing greater cooperation with Japan’s intervention efforts.”
Some Wall Street institutions remain wary that Japan could intervene again following its actions on Thursday. Yusuke Miyairi, a foreign exchange strategist at Nomura International, stated, “Ultimately, unless fundamentals change, the impact of foreign exchange intervention on exchange rates may only be temporary.”
Goldman Sachs strategists including Michael Cahill and Lexi Kanter wrote in a report released Friday, “Foreign exchange intervention can reduce the sensitivity of exchange rates to business cycle fluctuations for a period of time. Although this is not a ‘sustainable solution,’ it can be effective—and Japan holds ample foreign exchange reserves to continue this policy for some time.”
Intraday plunge of 500 pips: markets pinpoint signs of official intervention
This market volatility occurred during the New York trading session on July 30.
Approximately 50 minutes after the New York market opened at 9:30 a.m. local time, the dollar-yen exchange rate rapidly dropped from around 162.5 to below 158, registering a maximum intraday decline of 3.3%. The sharp and concentrated price movement closely resembles patterns observed during Japan’s previous foreign exchange interventions.
According to Bank of Japan data, combined with broker estimates, the Japanese government likely deployed approximately JPY 8.45 trillion on July 30 to support the yen.
Yuichiro Takai, a researcher at Totan Research, said data released by the Bank of Japan “almost certainly” indicates that authorities have already intervened in the foreign exchange market. He initially estimated the scale of intervention at approximately JPY 9.6 trillion but later revised his final estimate downward to around JPY 8.45 trillion after incorporating other liquidity factors.
Citing market sources, Nikkei reported that the Bank of Japan and other government agencies conducted large-scale yen-buying operations during the New York trading session that day, and U.S. authorities also made foreign exchange inquiries. Typically, the U.S. Treasury Department requests banks—via the Federal Reserve Bank of New York—to provide foreign exchange quotes to assess market conditions or coordinate with allies. The U.S. Treasury has not yet responded to these reports.
On the same day, U.S. Treasury Secretary Bessent stated in an interview, 'The yen appears significantly undervalued, and the market will likely come to recognize that the yen should be stronger.' This remark was widely interpreted by markets as indirect U.S. support for Japan’s stance on the yen.
Geoffrey Yu, senior strategist at Bank of New York Mellon, stated that such a magnitude of volatility 'strongly suggests that Japanese authorities likely intervened in the foreign exchange market,' though the ultimate impact will depend on subsequent market reactions.
Record-breaking interventions in the first half failed to reverse the yen's weakness.
This suspected intervention marks what could be another round of large-scale foreign exchange market intervention by Japan this year, drawing significant market attention.
According to Bloomberg, citing data from Japan’s Ministry of Finance, Japan spent approximately ¥11.73 trillion (about $73.2 billion) on foreign exchange intervention between April 28 and May 27, setting a new historical record. Market participants widely believe that Japanese authorities primarily raised funds by selling foreign exchange reserve assets, including U.S. Treasury securities.
However, previous interventions did not have lasting effects. With the U.S.–Japan interest rate differential remaining elevated and carry trades still active, the yen came under renewed pressure. On July 23, the dollar-yen exchange rate briefly rose to 163.99, reaching its highest level in nearly 39 years and eight months. Market observers noted that without a clear shift in Japan’s monetary policy stance, foreign exchange intervention alone is unlikely to alter the yen’s longer-term trajectory.
Ueda signals hawkish tone but fails to shift market expectations
At its policy meeting on July 31, the Bank of Japan kept its policy interest rate unchanged at 1%, in line with broad market expectations.
Governor Kazuo Ueda struck a relatively hawkish tone during the press conference, repeatedly emphasizing upside inflation risks and noting that underlying inflation is nearing the 2% target. He indicated that if financial conditions remain excessively accommodative, the Bank of Japan could accelerate its pace of rate hikes. Ueda also highlighted that the exchange rate’s impact on inflation is intensifying, requiring the central bank to pay closer attention to price pressures stemming from yen volatility.
However, as the meeting did not deliver a clear signal of an earlier-than-expected rate hike, market reaction was muted. The dollar-yen pair dipped briefly before rebounding. Markets currently expect the Bank of Japan could raise rates again as early as October, although this outlook remains contingent on future developments in inflation, wage growth, and exchange rate movements.
Carry trades remain the core contradiction, limiting the yen’s upside potential
Analysts believe that Japan's latest intervention may alter the short-term trend but is unlikely to eliminate the fundamental factors exerting long-term downward pressure on the yen.
According to Bloomberg data, the 90-day rolling correlation coefficient between USD/JPY and the two-year U.S.-Japan overnight index swap (OIS) spread has risen to 0.44 from approximately 0.25 in March, indicating that the U.S.-Japan interest rate differential is playing an increasingly influential role in exchange rate movements.
As long as the U.S.-Japan interest rate differential remains elevated, carry trades could continue to support USD/JPY.
Citi analysts noted that the recent sharp decline in USD/JPY was 'consistent with patterns observed during previous interventions,' but added that further yen appreciation may face challenges, as Kazuo Ueda's policy remarks did not significantly exceed market expectations.
Editor/Stephen