The United States and Japan have launched joint currency market intervention to defend the yen, which has fallen to its lowest level in approximately 40 years. The financial authorities of both countries determined that yen weakness could impact not only Japan's economy but also U.S. financial markets, leading them to choose an exceptional coordinated response and indicated their willingness to undertake additional joint intervention if necessary.

▲ Joint Response to 40-Year Low Yen Weakness

Japanese Finance Minister Katayama Satsuki announced on the 31st of last month that the U.S. and Japanese governments jointly intervened in the foreign exchange market by purchasing yen. She stated this was a measure to address the recent excessive volatility and disorderly movements of the yen, emphasizing close cooperation with the U.S. and a willingness to undertake additional joint intervention if needed.

U.S. Treasury Secretary Yellen also officially confirmed the joint intervention through a statement, reaffirming policy coordination between the two countries.

▲ First U.S.-Japan Joint Intervention in 15 Years…Exceptional Coordination

The joint currency market intervention between the U.S. and Japan marks the first occurrence in 15 years since the 2011 Great East Japan Earthquake, when it was implemented following a G7 agreement. At that time, the approach involved selling yen to mitigate sharp yen appreciation, but this time the reversal—jointly purchasing yen to prevent yen weakness—holds significant meaning.

Joint U.S.-Japan purchasing intervention to prevent yen weakness marks the first occurrence in 28 years since the 1998 Asian financial crisis. The reemergence of joint intervention, which had only occurred during exceptional circumstances such as financial crises or major disasters, drew significant market attention.

▲ U.S. Also Concerned About Financial Market Repercussions

Analysis suggests that behind the U.S. decision to jointly respond with Japan was concern that yen weakness could stimulate inflation in Japan and potentially lead to interest rate hikes by the Bank of Japan.

If Japan raises its benchmark interest rate, "yen carry trade unwinding" could occur, wherein funds borrowed at ultra-low yen rates and invested in U.S. Treasury bonds and equities would return to Japan. This could shock financial markets broadly, including declining Treasury bond prices, rising interest rates, and expanding volatility in global stock markets.

In particular, rising U.S. Treasury yields could push up mortgage interest rates, leading the Trump administration, ahead of the November midterm elections, to place significant emphasis on financial market stability.

▲ Immediate Market Response…Yen Value Surges

Following the joint intervention announcement, the yen rebounded rapidly in the Tokyo foreign exchange market. The dollar-to-yen exchange rate declined to 155.31 yen intraday, with intervention effects immediately reflected in the market.

Prior to this, the yen had approached 164 yen per dollar, falling to its lowest level in approximately 40 years and creating burdens across Japan's economy.

▲ Yen Appreciation Brings Mixed Fortunes Across Industries

Yen appreciation is expected to have varying impacts depending on industry sector.

Industries with high import dependence, such as crude oil, liquefied natural gas (LNG), and food products, can expect cost reduction effects from lower import unit prices. Conversely, Japan's representative export industries, such as automobiles, face the possibility of weakened price competitiveness.

Additionally, travel costs for foreign tourists who benefited from yen weakness may rise, potentially moderating the growth momentum in tourism demand.

▲ "Limited Effects Without Fundamental Solutions"

Market analysts have raised concerns that while this joint intervention may stabilize exchange rates in the short term, its sustainability has limitations.

Eric Wallerstein, strategist at U.S. investment advisory firm Clocktower Group, noted that U.S. and Japanese authorities themselves recognize that market intervention effects to date have been temporary, forecasting that intervention may be repeated over the coming quarters. However, he suggested that without accompanying monetary policy changes such as accelerated rate hikes by the Bank of Japan, the effects would be difficult to sustain long-term.

Robin Brooks, a researcher at the U.S. Brookings Institution, also diagnosed that the root cause of yen weakness lies in Japan's excessive debt structure, making intervention in exchange rates alone inherently temporary in effect. He analyzed that ultimately, yen value stabilization requires structural responses including monetary and fiscal policy measures.