Japan spent a record 15.4 trillion yen ($96.5 billion) propping up the Japanese currency between late July and late August, the Finance Ministry revealed on Friday, confirming the largest monthly foreign exchange intervention in the nation’s history.
The operation, spanning July 30 to August 26, came after the yen plunged to 163.99 per dollar last month, its weakest level since 1986. The four-decade low triggered alarm in Tokyo, prompting authorities to flood currency markets with dollar reserves and buy back yen in an effort to reverse the slide that threatened to become a full-blown currency crisis.
First Joint US-Japan Operation in 28 Years
The most dramatic moment came on July 31, when Japan and the United States carried out their first coordinated currency intervention since 1998. The US Treasury, through its Exchange Stabilization Fund, joined Tokyo in buying yen and selling dollars, a rare step that underscored the severity of the currency dislocation rattling global markets.
The joint operation sent the yen soaring to 157.40 per dollar, its strongest reading since early May, in an intraday move of more than one full yen within a 45-minute window. Treasury Secretary Scott Bessent’s notepad, glimpsed by reporters at the time, showed a target range of $5 billion to $10 billion for the US contribution to the operation.
Rather than selling dollars directly, the New York Fed chose to sell euros held in the Exchange Stabilization Fund for yen, a more efficient route that avoided draining dollar liquidity from US markets. The mechanics mattered because the ESF’s truly deployable currency reserves are a small fraction of its headline asset size, most of which sit in Special Drawing Rights at the International Monetary Fund.
Why the Yen Collapsed
The yen’s weakness stems from a toxic cocktail of structural pressures that intervention alone cannot resolve. The yawning gap between Japanese and American interest rates, with the Bank of Japan’s policy rate at 1.0 percent versus the Federal Reserve’s 3.75 percent, continues to drive capital outflows from the yen into higher-yielding dollar assets.
High oil prices have compounded the problem. Japan imports nearly all its crude oil, and the six-month Iran war has sent Brent crude above $90 per barrel, widening Tokyo’s current account deficit and increasing demand for dollars to settle energy bills. Prime Minister Sanae Takaichi’s fiscal spending plans, which threaten to swell Japan’s already enormous public debt exceeding 260 percent of GDP, have added another layer of concern among currency traders betting against the yen.
“If energy prices remain high, we will not allow their effects to spread and turn into persistent inflation,” Bank of Japan Governor Kazuo Ueda warned at a recent press conference, signaling that further rate hikes remain firmly on the table.
Record Scale, Uncertain Outcome
The scale of the intervention dwarfs all previous episodes in Japanese history. Japan’s last major solo interventions in 2022 and 2024 each involved roughly 9 trillion yen over similar timeframes. The 15.4 trillion yen deployed between late July and late August exceeds both benchmarks, reflecting the extreme urgency authorities felt as the yen threatened to breach 165 per dollar and trigger a cascade of carry-trade unwinding across global markets.
As of Friday, the yen had settled at 159.6 per dollar, well off its lows but still significantly weaker than levels seen earlier in the year. The currency has lost roughly 8 percent against the dollar since the Iran war began in February, driven by the combined weight of higher oil costs, widening interest rate differentials, and speculative selling.
The intervention bought time but may not have solved the underlying structural imbalance. Analysts note that Japan’s rate differential with the United States remains wide, and until the Bank of Japan raises rates further or the Federal Reserve begins cutting, the gravitational pull on the yen toward weaker levels will persist. The joint US-Japan operation also carries political significance, signaling that Washington views yen stability as a shared strategic interest rather than a purely Japanese domestic matter.
Currency markets will now watch closely for the Bank of Japan’s next policy meeting, where further rate increases could provide more sustainable support for the yen than intervention alone. Markets are pricing in at least one additional 25 basis point hike by year-end, which would bring the policy rate to 1.25 percent. Until then, the Ministry of Finance has made clear it stands ready to intervene again if speculative pressures rebuild.
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