Japan's Ministry of Finance confirmed a joint intervention with the U.S. Treasury last week that pulled the yen back from a 40-year low. The action followed months of quiet coordination between Tokyo and Washington, and now puts a Bank of Japan rate hike in September in focus.
Japan's Ministry of Finance confirmed Monday that it staged a joint intervention with the U.S. Treasury Department in forex markets last week to strengthen the yen against the dollar. The finance ministry added that Japan and the U.S. will not hesitate to take further action.
The yen had sunk to a 40-year low of ¥164 to the dollar last week. It then strengthened almost 5% to ¥156.70 by Monday, though it remains only back to its May trading level and roughly flat on the year against the dollar.
Months of quiet coordination
Coordination between the two governments took months to come together. U.S. participation in yen-buying intervention was considered as early as January, when the New York Federal Reserve made rare rate checks to help Tokyo combat yen declines, according to a Japanese government official familiar with the preparations.
Japan's Finance Minister Satsuki Katayama said she and Treasury Secretary Scott Bessent held about 10 conversations that included exchange rate discussions, including a three-and-a-half-hour meeting in Tokyo in May. Until last week, though, both had tried to boost the yen only through verbal encouragement, a strategy that proved unsuccessful.
How much they spent
Central bank data reviewed by Reuters indicates Japan may have spent as much as $36.58 billion buying yen on Monday, based on a projected 11.4 trillion yen net fund outflow that outstripped brokerage forecasts of 5.66 trillion to 6.70 trillion yen. Separately, Bank of Japan data from Friday indicated Tokyo may have sold as much as $58.97 billion to shore up the yen after the currency jumped in New York trading a day earlier.
Rates set the stage for September
Japan's policy rate stands at just 1%, against the Fed's target range of 3.50%-3.75%. A widening interest rate differential with the U.S. has been a key factor in the dollar's rise against the yen. BOJ Governor Kazuo Ueda kept the rate unchanged last Friday but struck his most hawkish tone to date, a shift analysts read as all but confirming a hike at the BOJ's September 17-18 meeting. Markets now see that meeting as live, keeping open the possibility of a rate hike.
According to Reuters, Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, sees a September hike as near-given: "I feel like a September rate hike is a done deal."
Bond strategist Yuki Kimura at Okasan Securities said Japan's decision to act alongside Washington raises the question of whether the BOJ can still afford to forgo raising rates in September.
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