Japan and the United States conducted coordinated intervention from late July to early August, restoring the yen's level against the dollar through yen purchases. The United States' use of a strategy involving euro sales suggested the potential for spillover into broader markets, affecting the yuan and the euro as well. Further developments will be closely watched.
The interest-rate differential between Japan and the United States was behind the yen's depreciation. The Bank of Japan's policy rate was approximately 1.0%, while the US federal funds rate was 3.50–3.75%, and the gap had widened. Against a backdrop of rising energy prices and imported inflation, the yen temporarily fell to around ¥164 per dollar, its weakest level since 1986.
On 30–31 July, the Ministry of Finance conducted coordinated market intervention with the United States. The Ministry of Finance purchased yen, while the United States is said to have instructed financial institutions to sell euros and buy yen. The US-side intervention is estimated to have amounted to approximately $10 billion. Treasury Secretary Scott Bessent explained that stabilizing the yen exchange rate would contribute to global financial stability.
Following the intervention, the yen temporarily strengthened to around ¥155 per dollar, rising approximately 5% over the week. The yen also fluctuated against the euro, falling below ¥180 per euro at one point, but the interest-rate differential and economic fundamentals between Japan and the United States remained unchanged, leading many to view the effects as temporary.
In the short term, the coordinated intervention by Japan and the United States could put upward pressure on Asian currencies, including the yuan. The yuan temporarily moved above 6.75 per dollar, while yen appreciation could support the yuan's real effective exchange rate. In Europe, the euro also fell against the yen at times, but the impact on the euro is viewed as limited.
The ECB has maintained its stance of avoiding direct intervention and emphasizing market forces. The latest developments have highlighted challenges facing the international monetary order, with the dollar-centered system and diversification of foreign-exchange reserves likely to be key areas of focus going forward.