Yen jumps to 157 as US-Japan joint intervention ends carry era

The dollar fell to 157.40 yen Friday after the Federal Reserve Bank of New York bought yen alongside Japanese authorities, the first coordinated US-Japan intervention to support the currency since 1998.

"The coordinated intervention demonstrated that traders had underestimated the willingness of US and Japanese authorities to defend the yen," said Michiyoshi Kato, senior adviser at Sumitomo Mitsui Trust Bank.

The dollar had traded above 162 yen before the operations. Bloomberg estimated Japan spent about 8.45 trillion yen ($53.7 billion) on Thursday alone, which would be its largest single-day intervention. Combined with the 11.7 trillion yen spent from late April through late May, Japan's intervention this year totals about 18 trillion yen ($114.4 billion), exceeding the previous annual record of 15.3 trillion yen set in 2024.

The intervention marks a potential inflection point for the yen carry trade — the practice of borrowing low-yielding yen to fund higher-yielding assets globally. With the BOJ holding rates at 1 percent against a US fed funds range of 3.75 percent, the interest rate gap that fueled the trade remains wide, but derivatives markets now price about 40 percent odds of a BOJ hike in September, up from 30 percent at the start of the week.

The scale of the operation became clear Friday when a Reuters photograph captured Treasury Secretary Scott Bessent's notepad at a Camp David cabinet meeting, listing "Buy Japanese Yen (JPY) $5-10 bil" as a to-do item. The New York Fed executed the purchases through Goldman Sachs and Morgan Stanley, selling euros to buy yen, according to the Financial Times.

Japan's Finance Ministry confirmed Monday that it conducted joint yen-buying intervention with the US Treasury, saying it "will not hesitate to conduct further joint intervention." President Donald Trump said Sunday the US was helping Japan "as a sign of friendship," drawing a parallel to last year's currency swap with Argentina, from which he said Washington earned $25 billion.

Japan's Treasury Holdings Become a Lever

The intervention's most consequential transmission channel runs through US Treasuries. If Tokyo must continue defending the yen, it may need to sell its holdings of US government debt — the largest foreign position in the market. Japan's Finance Ministry has pointed to the Federal Reserve's Foreign and International Monetary Authorities Repo Facility as a way to obtain dollars by temporarily pledging Treasury securities rather than selling them outright.

James Thorne, chief market strategist at Wellington Altus, said the Treasury's actions show it understands that long-end yield moves are driven by capital flows. "When the largest overseas holder of US debt becomes a seller, long-end yields face repricing," he said.

Carry Trade Unwind Reshapes Global Credit

The broader implication extends beyond FX. For decades, Japan exported savings through the carry trade, keeping global yields suppressed. As the BOJ exits quantitative easing and the carry trade unwinds, market rates will increasingly be set by capital markets rather than central banks.

Evercore ISI strategists Marco Casiraghi and Lu Gang cautioned that FX intervention without interest rate policy support "would probably have a relatively short-lived effect." The BOJ voted 8-1 Friday to hold its benchmark rate at 1 percent — the highest since 1995 — while Governor Kazuo Ueda said policymakers needed to pay greater attention to upside inflation risks, leaving open the possibility of faster hikes.

The last time the US and Japan intervened jointly was in 2011, when they sold yen to restrain its appreciation after the earthquake and tsunami. That operation was the reverse of this week's action, showing how the currency's trajectory has reversed over the past decade and a half.

Some strategists see the intervention as the beginning of a broader realignment — a new Plaza Accord that could reshape the international monetary system. The US is pursuing supply-side economics and deregulation to escape secular stagnation, while Japan may finally undergo a restructuring of its economic and geopolitical role. If this policy direction persists, the yen carry trade that has defined global capital flows since the 1980s could be entering its terminal phase.

South Korea also stepped in to buy the won on Thursday, suggesting broader Asian currency defense is underway. Japan and the US could announce a joint policy response to yen weakness as early as this week, Reuters reported.

This article is for informational purposes only and does not constitute investment advice.