US sells euros to stabilize yen in first coordinated intervention with Japan in over a decade

The US Treasury did something on August 1 that it hasn’t done in a very long time: it stepped into the foreign exchange market alongside Japan and actively intervened to prop up the yen. The twist that caught everyone off guard was the chosen weapon. Rather than selling dollars, the New York Federal Reserve sold euros to buy yen, a move designed to shore up Japan’s battered currency without sending any signal that Washington had lost faith in its own. The USD/JPY rate dropped from roughly 163 to below 158 in the aftermath. Why euros, and why now The yen had been trading at near 40-year lows against the dollar heading into August. Japan’s currency has been under relentless pressure, largely because the Bank of Japan has kept interest rates far below those of its peers while the Federal Reserve has maintained a comparatively tight monetary stance. Japan had already been fighting the slide on its own. Tokyo’s prior yen-buying operations reportedly totaled as much as ¥11.7 trillion, roughly $36.58 billion. The US contribution was estimated between $5 billion and $10 billion. When the world’s reserve currency issuer shows up on the same side of a trade as Japan, speculators tend to paus...