- U.S. Treasury Secretary Scott Besant stated that if the yen continues to experience disorderly fluctuations, Washington will not hesitate to coordinate foreign exchange intervention with Japan again. He mentioned that last Friday's joint action between the U.S. and Japan effectively curbed market volatility, and the U.S. is currently maintaining close communication with Japan's Ministry of Finance and the Bank of Japan.
- The U.S. also clearly supports expanding the Federal Reserve's Foreign and International Monetary Authorities (FIMA) repo facility to provide critical liquidity support. U.S. President Donald Trump also expressed support for this first joint yen purchase intervention since 2011, stating that it demonstrates the deepening of the allied relationship between the two countries.
- Last Friday, the Bank of Japan kept the short-term interest rate unchanged at 1% but left the window open for further rate hikes. As the market reevaluates the severe undervaluation of the yen and adjusts policy expectations, the USD/JPY fell nearly 4% last week, with the latest trading price at 157.71.
U.S.-Japan Commitment to Joint Currency Intervention
The U.S. Treasury has clearly signaled its readiness to intervene in the market again at any time. This policy statement significantly increased the cost of shorting the yen, prompting a rapid unwinding of previously accumulated yen short positions, and in the short term, re-anchored the USD/JPY volatility range and risk appetite.
Expanding Liquidity Tool Support
The U.S. supports expanding the Federal Reserve's FIMA repo facility to provide a deep dollar liquidity buffer for global markets. This mechanism helps alleviate the pressure of U.S. Treasury sales during foreign exchange interventions, reduces the clearing risk of cross-border funding chains, and stabilizes cross-border capital flows.
Bank of Japan's Interest Rate Decision and Inflation Expectations
The Bank of Japan maintained the short-term policy rate at 1% but clearly indicated that sustained core inflation at this stage would trigger further rate hikes. This hawkish signal, combined with the U.S.-Japan joint foreign exchange action, forms a policy synergy that guides the market to reprice the narrowing U.S.-Japan interest rate differential, leading to a marginal recovery in yen asset valuations.
Political Endorsement and a New Phase of Abenomics
U.S. President Donald Trump gave a positive endorsement to the coordinated foreign exchange intervention, while the Treasury views the Japanese government's policies under the leadership of Sanae Takaichi as a new phase of Abenomics. The policy coordination between the two countries, combined with political trust, has reversed the extreme pessimism when the yen hit a 40-year low, providing a more stable exchange rate environment for commodity and cross-border investment settlements.
