The Bank of Japan raised its policy rate on Friday as part of a coordinated intervention with the U.S. Treasury to support the yen, which has fallen 59% against the dollar since 2017. The joint action, involving an estimated $34 billion to $36 billion in combined FX purchases, marks the first time the United States has intervened alongside Japan to prop up the yen since June 1998.
Japan had already spent approximately $87 billion of its foreign exchange reserves buying yen over the previous two days in late July, according to the Peterson Institute for International Economics. The Treasury added a relatively small financial contribution but provided what Treasury Secretary Scott Bessent called a significant signal of political backing, framing the move as delivering for "America's trusted partners."
In an unusual detail, the U.S. Treasury sold euros to purchase yen rather than dollars, a move likely intended to avoid pushing the greenback lower even as it helped strengthen the Japanese currency. The Bank of Japan also tapped the Federal Reserve's Foreign and International Monetary Authorities Repo Facility, which allows foreign central banks to borrow dollars against Treasury collateral instead of selling holdings on the open market — a mechanism that would otherwise push U.S. yields higher.
The intervention appeared to have immediate market effects. The yen strengthened from just above 163 per dollar to below 157 by Monday afternoon, and the U.S. 10-year Treasury yield fell roughly one percentage point to 4.68% from Friday's close of 4.73%.
The policy coordination reflects overlapping but distinct motivations. For Japan, the objective was to prevent disorderly yen depreciation without raising interest rates further — a sensitive task given the country's 237% debt-to-GDP ratio and Prime Minister Sanae Takaichi's stated preference for cautious monetary normalization. For the United States, the intervention aimed to curb rising yields across the five- to 30-year maturity spectrum that followed the Federal Reserve's July 29 meeting, while also deterring a scenario in which Japan needed to sell its $1.1 trillion in U.S. Treasury holdings to fund yen purchases.
Analysts cautioned that the appreciation may not prove durable. Without a further narrowing of the interest-rate differential between the U.S. and Japan — likely to be discussed at the BOJ's next meeting on September 17-18 — the yen could drift back toward 160 or beyond. Some projections place the yen at 170 against the dollar by 2027 despite the intervention.
The Peterson Institute noted that conflicting U.S. policy directions — including tariffs imposed under Section 301 of the Trade Act and Japan's agreement to invest $550 billion in U.S. projects — continue to exert downward pressure on the yen, suggesting the intervention addresses symptoms more than underlying causes.
