The U.S. Treasury informed banks it may intervene in the Japanese yen market on Friday, Aug. 2, 2024 [1].
This potential move marks a rare instance of U.S. government interference in foreign exchange markets to stabilize a partner's currency. Such actions are typically reserved for extreme volatility that threatens global financial stability or specific economic interests.
According to sources, the Treasury said banks should "stand ready for future action" [1]. This warning comes as the yen has slid toward 40-year lows [2], largely driven by the pressure of a strong U.S. dollar [2].
If the action is confirmed, it would represent the first U.S. intervention in the yen in more than 10 years [2]. The move follows reports of a coordinated yen-buying intervention by Japan's Finance Ministry [1].
Reports on the timing and nature of the action vary. Some sources said the Treasury merely warned banks that an intervention could happen on Friday [1]. Other reports said that the U.S. Treasury and Japan have already confirmed a coordinated yen-buying intervention that took place on that day [1].
The U.S. Treasury has not issued a formal public statement confirming the exact scale of the operation, but the communication to banks suggests a high level of readiness to support the currency's value.
“"stand ready for future action"”
A coordinated intervention between the U.S. and Japan suggests that the devaluation of the yen has reached a level that officials consider unsustainable. By signaling a willingness to buy yen, the U.S. Treasury aims to discourage speculative trading and reduce the volatility that occurs when a currency deviates too sharply from its historical average.
