The United States and Japan carried out a rare coordinated currency intervention on Friday, July 31, to support the yen after it fell to a 40-year low, Reuters reported.
Following the intervention, the yen strengthened more than 1%, to roughly 155 per dollar, pulling back from a low of about 164 per dollar recorded a month earlier. President Donald Trump described US involvement in the operation as a gesture of friendship and support for the global economy.
The last time the United States and Japan conducted a similar intervention was nearly 30 years ago, in 1998.
How the dollar liquidity mechanism worked
Japan is the largest foreign holder of US government debt. Had it moved to rescue its currency alone, it would have had to sell large volumes of US Treasury bonds, which would have driven up borrowing costs for the US government. To avoid that outcome, the two countries used the Federal Reserve's FIMA facility, which allowed Japan to obtain dollar liquidity without directly selling its Treasury holdings.
Analysts said the signal that Japan can access dollars without offloading assets may matter more than the intervention itself. Masahiko Loo, a macro strategist at State Street, said the move removes concerns that currency interventions by Japan's Ministry of Finance could pressure US borrowing markets by forcing sales of short-term US Treasury bonds.
Why the yen has been sliding
Several factors have driven the yen's decline. Japan relies heavily on energy imports from the Middle East, and supply has slowed because of the US war against Iran. The Bank of Japan has also kept interest rates extremely low, making the yen less attractive to international investors.
In addition, Prime Minister Sanae Takaichi announced large-scale economic stimulus measures, including investment across various sectors and a temporary cut to the sales tax on food. With Japan's public debt already exceeding 200% of GDP, experts fear such spending could trigger a crisis resembling the Liz Truss shock, adding further pressure on the yen.
In 2025, the United States carried out an unprecedented currency intervention in Argentina to support its ally, President Javier Milei.
