Key facts
- The U.S. Treasury sold euros to purchase yen in a coordinated currency market intervention with Japan.
- This action is considered highly unusual by market analysts.
- The intervention likely aims to strengthen the yen without signaling a desire for a broadly weaker U.S. dollar.
- A weaker dollar could exacerbate U.S. inflation concerns.
- Japan's Ministry of Finance also conducted intervention on Thursday.
- The yen saw a significant weekly gain of nearly 4%.
The U.S. Treasury Department engaged in an unusual currency market intervention, selling euros to buy yen in coordination with Japan. This move, confirmed by Japan's Ministry of Finance, is seen by analysts as a significant departure from typical intervention strategies. HSBC analysts described the action as "highly unusual — maybe unprecedented," suggesting it reflects a U.S. desire to support the yen without signaling a broader weakening of the dollar.
Market participants noted that a weaker dollar could complicate the Federal Reserve's efforts to control inflation, which is currently above target. The U.S. Treasury's choice to use euros as the intervention currency avoids signaling a desire for broad-based dollar weakness, according to Barclays analysts, thereby keeping the operation focused on the yen.
Japan's Ministry of Finance also intervened in markets on Thursday, and further sharp moves on Monday were potentially intervention-driven. The yen has recovered from 40-year lows, strengthening almost 4% last week. Central bank data indicated Japan may have spent as much as $36.58 billion buying yen during Friday's joint intervention. The U.S. has approximately €26 billion readily available for intervention.
The European Central Bank (ECB) was reportedly in contact with the Federal Reserve over the U.S. selling euros for yen. While the ECB declined to comment, sources indicated communication between the central banks. The long-term implications of the U.S. selling euros for yen are now a focus, though MUFG's Hardman suggested it might have limited impact on the euro given the relatively small amount of currency held by the U.S. for such purposes.