Japan and the United States bought yen in a coordinated intervention in late July, but its effect in reversing the yen's depreciation was limited. Here is an overview of the background and mechanics.
The Japanese and US governments carried out a coordinated yen-buying intervention in late July. Although its scale was described as the largest since 1998, the intervention did not produce a lasting reversal toward yen appreciation. The intervention is conducted under the government's authority and operationally by the Bank of Japan, with funds used to buy yen.
Intervention funds are accumulated in the Foreign Exchange Fund Special Account. The Japanese government raises the dollar funds by selling US Treasuries, and the Bank of Japan uses them to buy yen in the market. In practice, the Bank of Japan coordinates the transactions with Japanese and foreign banks.
Because dollar funding must be secured and intervention cannot be maintained indefinitely, the shift toward yen appreciation was temporary. Unless the long-term structural factors supporting yen appreciation are resolved, speculative activity may continue.
Factors cited as weakening the intervention's effect include the US government's desire to avoid influencing US interest-rate trends and Japan's dovish stance. These factors prevented investors' momentum to buy yen from being sustained.