“The Limits of Unilateral Intervention” — Behind the Scenes of the Shock “Japan-US Coordinated Intervention” Operation, the First in 28 Years: What Moved the United States and What Were the Motives Behind It?

Following the yen-buying intervention on the night of 30 July, the government and the Bank of Japan continued the intervention from the following day onward. The initial move was a unilateral intervention, but the following day the Japanese and US governments jointly moved to buy yen, resulting in the first Japan-US coordinated intervention in 28 years. After the yen moved from around ¥165 to the ¥157 range, it again moved into the ¥155 range in August.

The background included rising long-term interest rates and upward pressure on prices in Japan, while the United States was concerned about the risk of interest-rate spillovers. The Trump administration's preference for correcting the dollar's strength, along with policy aimed at promoting a stronger yen and a weaker dollar, has been cited as part of the background to the intervention. Unlike the intervention stance based on last year's joint statement, this intervention involved actual market purchases without prior notice.

The second objective on the US side was to contain an interest-rate shock originating in Japan. Rising long-term interest rates could increase mortgage burdens and corporate funding costs, raising concerns about an impact on the US economy. As a result, the coordinated intervention was sought to curb yen depreciation and stabilize interest rates.

The focus going forward is the outlook for a Bank of Japan rate hike in the autumn. As the effects of the coordinated intervention persist, both Japan and the United States face the question of whether changes to fiscal and monetary policy can alter market dynamics. Market participants continue to believe that underlying pressure for yen depreciation has not completely disappeared, given the wide interest-rate differential between Japan and the United States.