Coordinated intervention after yen hit 40-year low may buy time for Japanese central bank ahead of potential rate hikes
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The United States Treasury and the Bank of Japan worked together to intervene in currency markets last month in a bid to stabilize the yen, which had fallen to a 40-year low against the U.S. dollar. The action marked the first intervention by the U.S. to support the yen since June 1998, and came as a surprise to central banks around the world, who were not given advance warning. Why is the yen so important, what could happen if its value falls and what does it mean for Canada? The Financial Post explains.
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The Bank of Japan and the U.S. Treasury worked together to intervene in the yen on July 31, a move that Treasury Secretary Scott Bessent said was needed to counter “disorderly yen movements.”
The joint intervention came after the yen dropped to 164 yen per U.S. dollar, a level not seen since the 1980s. The yen was down by more than 11 per cent against the U.S. dollar over the past 12 months at the time of the intervention, but has since recovered some of that ground.
“We will not hesitate to participate in further joint intervention,” Bessent said in a tweet on Aug. 2. “We strongly support Japan’s decisive market and monetary steps to correct the substantial undervaluation of the yen.”
It is unclear how much yen the U.S. Treasury bought, but an image of a notepad belonging to Bessent suggested he planned to buy US$5-billion to US$10-billion worth of the currency.
In a twist that blindsided the European Central Bank, Treasury officials sold euros rather than dollars in exchange for yen.