Washington’s decision to join Japan in supporting the battered yen has raised questions about what prompted the rare coordinated intervention. Analysts say the move was driven by concerns over the stability of U.S. Treasury markets, Japan’s financial system, and broader global markets.
The yen recently tumbled to its weakest level against the U.S. dollar in nearly four decades, falling to 163.73 before recovering to around 157.57. The intervention marked the first joint U.S.-Japan purchase of yen since 1998 and the first coordinated currency action between the two nations since the G7 intervened after Japan’s 2011 earthquake.
Market experts told CNBC that Washington’s primary concern was preventing Japan from selling large amounts of U.S. Treasurys to fund unilateral currency intervention. Japan is the largest foreign holder of U.S. government debt, and any significant Treasury sales could disrupt U.S. bond markets.
Louise Loo, head of Asia economics at Oxford Economics, said avoiding that outcome was likely a major reason for U.S. involvement. She noted that aggressive fiscal measures in Japan could spill over into U.S. Treasury markets, creating volatility and putting pressure on the dollar.
Loo also pointed to the Federal Reserve’s FIMA repo facility, which allows foreign central banks to access U.S. dollar liquidity without selling Treasurys. She said the emphasis both governments placed on the facility suggested they wanted to minimize forced bond sales.
Japan’s Finance Ministry confirmed Monday that it plans to use the FIMA repo facility in future currency interventions. Masahiko Loo, senior macro strategist at State Street, said the announcement could be even more significant than the intervention itself, as it reassures markets that Japan can obtain dollar funding without disrupting U.S. debt markets.
He added that Washington’s concerns extend beyond the yen. A prolonged depreciation of the Japanese currency could trigger further selling of Japanese government bonds, pushing yields higher and creating ripple effects across global bond markets at a time when both Japan and the U.S. are facing rising long-term borrowing costs. U.S. 10-year Treasury yields have already climbed nearly 57 basis points this year.
The coordinated intervention also reflects a broader shift in U.S.-Japan relations. President Donald Trump said Washington joined the operation to support Japan and promote global financial stability.
Beyond safeguarding U.S. bond markets, the move aligns with Washington’s broader economic priorities. Oxford Economics noted that U.S. officials have long viewed the yen as significantly undervalued, arguing that its weakness gives Japanese exporters an unfair competitive advantage.
Loo added that coordinated intervention could provide the Bank of Japan with time to resume raising interest rates later this year if policymakers believe Japan’s fiscal stance is contributing to higher bond yields and a weaker currency. Ultimately, she said, a lasting recovery in the yen will depend on tighter monetary policy rather than repeated market intervention.