Japan and the United States conducted coordinated foreign-exchange intervention on Friday to counter the yen’s sharp depreciation, marking an informal 'currency alliance' that links FX policy with broader economic and national-security priorities, according to Citi strategists.
The move follows a period of sustained yen weakness, with the USD/JPY pair trading near 158.98 at the close of business on Friday, down marginally from prior sessions. Citi noted that the intervention represents the latest step in a policy coordination effort rather than a formal monetary union. Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, characterized the action as the culmination of this alliance, which has evolved alongside deepening ties between Tokyo and Washington.
U.S. Treasury Secretary Scott Bessent has avoided implementing a broader 'Mar-a-Lago accord' aimed at restructuring the international monetary system, Citi said. However, the intervention aligns with concerns that prolonged yen weakness could recreate conditions similar to the late-1990s Asian currency crisis, when the USD/JPY exchange rate plunged from ¥147 to ¥108 within six months following the collapse of Long-Term Capital Management. Bessent’s approach reflects a preference for targeted dollar-selling operations via the Federal Reserve’s Foreign and International Monetary Authorities facility, rather than sweeping policy changes.
Political signals accompanied the intervention, with U.S. President Donald Trump describing the action as a 'signal of friendship' toward Japan. The move may also serve as a warning to Japanese Prime Minister Sanae Takaichi regarding reflationary policies that could further weaken the yen, a stance Washington is reportedly urging Tokyo to moderate. The intervention included an unusual element: U.S. sales of euros to purchase yen, a tactical shift by the Treasury’s Exchange Stabilization Fund to reduce exposure to an overvalued euro and capitalize on the yen’s undervaluation.
While European authorities are unlikely to endorse large-scale euro selling, Citi suggested they may tolerate limited intervention if it follows Washington’s lead. The action comes ahead of key international gatherings, including the Jackson Hole symposium from August 27 to 29 and the G7 and G20 finance meetings in Asheville on August 31 and September 1, where currency stability and policy coordination are expected to feature prominently in discussions.
