Was coordinated intervention a "token of friendship" toward Japan?
Japan and the US are believed to have jointly intervened in the forex market on July 31. If so, this would be the first coordinated intervention since 2011, 15 years ago, when the yen surged following the Great East Japan Earthquake. It would also be the first yen-buying intervention since 1998, 28 years ago, when authorities were responding to a financial crisis.
The US government's caution is evident in the Trump administration's decision to intervene by selling euros—not dollars—and buying yen due to concerns about undermining confidence in the de facto reserve currency, as well as in the relatively small scale of the US intervention compared with Japan's.
Nevertheless, coordinated intervention under ordinary circumstances, rather than in response to a natural disaster or financial crisis, is highly unusual. President Trump described the intervention as a "token of friendship" toward Japan. But in reality, the US also stood to benefit from participating, and the action can be viewed as the result of an alignment of the two nations' interests.
By supporting efforts to halt the yen's slide, the Trump administration likely sought to prompt a correction in the strong US dollar, thus helping reduce the US trade deficit, while also preventing the higher Japanese long-term interest rates associated with a weaker yen from spilling over into US long-term yields.
The US government's caution is evident in the Trump administration's decision to intervene by selling euros—not dollars—and buying yen due to concerns about undermining confidence in the de facto reserve currency, as well as in the relatively small scale of the US intervention compared with Japan's.
Nevertheless, coordinated intervention under ordinary circumstances, rather than in response to a natural disaster or financial crisis, is highly unusual. President Trump described the intervention as a "token of friendship" toward Japan. But in reality, the US also stood to benefit from participating, and the action can be viewed as the result of an alignment of the two nations' interests.
By supporting efforts to halt the yen's slide, the Trump administration likely sought to prompt a correction in the strong US dollar, thus helping reduce the US trade deficit, while also preventing the higher Japanese long-term interest rates associated with a weaker yen from spilling over into US long-term yields.
Did Japan make fiscal and monetary policy commitments to US?
In January this year, US Treasury Secretary Scott Bessent expressed concerns about rising Japanese long-term yields driven by fiscal concerns and urged the Takaichi administration to conduct policy with due regard for market stability. Last October, he also urged the administration to refrain from discouraging rate hikes by the Bank of Japan because doing so would exacerbate the weakness in the yen.
It may be that something resembling a secret accord between the two countries was behind the Trump administration's unusual decision to help Japan arrest the decline in the yen. I suspect the Takaichi administration may have promised the US that it would adopt a more cautious approach to fiscal policy in consideration of financial market stability and refrain from pushing back on BOJ rate hikes.
If such a secret agreement exists and the Takaichi administration actually implements it, it could remove the two factors driving the yen lower and thus provide sustained support for the currency. In that case, the coordinated intervention could mark a major turning point in the yen's downward trend.
In part because of this, some in the financial markets have begun to speculate that the intervention could lead to earlier BOJ rate hikes.
It may be that something resembling a secret accord between the two countries was behind the Trump administration's unusual decision to help Japan arrest the decline in the yen. I suspect the Takaichi administration may have promised the US that it would adopt a more cautious approach to fiscal policy in consideration of financial market stability and refrain from pushing back on BOJ rate hikes.
If such a secret agreement exists and the Takaichi administration actually implements it, it could remove the two factors driving the yen lower and thus provide sustained support for the currency. In that case, the coordinated intervention could mark a major turning point in the yen's downward trend.
In part because of this, some in the financial markets have begun to speculate that the intervention could lead to earlier BOJ rate hikes.
Takaichi administration presses ahead with consumption tax cut
However, I have doubts about this scenario. Following the intervention, the Takaichi administration has moved ahead with efforts to cut the consumption tax on food to 1%. Meanwhile, discussions on how to fund the tax cut have been left for later, with no apparent consideration given to market concerns about a deterioration of the nation's finances.
The Takaichi administration has explained that it will ensure market confidence in fiscal policy by steadily reducing the government debt-to-GDP ratio. However, this is merely a statement of policy, and no specific measures to achieve it have been presented. The administration may have similarly provided the US with a mere indication of its intention to conduct fiscal policy with due regard for financial market stability.
The Takaichi administration has refrained from openly trying to discourage further BOJ rate hikes since the start of 2026. This is probably intended to avoid inducing weakness in the yen and a corresponding rise in prices, as well as to accommodate the Trump administration's criticism of the government’s attempts to deter rate hikes.
But even if the administration does not openly push back on additional tightening, it may still do so behind the scenes, and it would not be easy for the Trump administration to ascertain whether this was happening.
The Takaichi administration has explained that it will ensure market confidence in fiscal policy by steadily reducing the government debt-to-GDP ratio. However, this is merely a statement of policy, and no specific measures to achieve it have been presented. The administration may have similarly provided the US with a mere indication of its intention to conduct fiscal policy with due regard for financial market stability.
The Takaichi administration has refrained from openly trying to discourage further BOJ rate hikes since the start of 2026. This is probably intended to avoid inducing weakness in the yen and a corresponding rise in prices, as well as to accommodate the Trump administration's criticism of the government’s attempts to deter rate hikes.
But even if the administration does not openly push back on additional tightening, it may still do so behind the scenes, and it would not be easy for the Trump administration to ascertain whether this was happening.
Doubts over whether intervention will clearly reverse yen’s decline
Even if the Takaichi administration promised the US that it would pursue fiscal policy with an eye on market stability and refrain from discouraging BOJ rate hikes as part of an understanding behind the coordinated intervention, it may not necessarily fulfill those commitments.
I think there may be differing views within the Japanese government: while the Ministry of Finance is primarily responsible for coordinating exchange rate policy with the US authorities, Prime Minister Takaichi herself may not regard the weak yen or falling JGB prices as being especially serious problems.
Under such circumstances, I suspect even the exceptional step of coordinated Japan–US intervention without a crisis will not prove to be the breakthrough event needed to clearly reverse the yen's decline.
Furthermore, the coordinated intervention has left Japan significantly indebted to the US, raising concerns that this could place constraints not only on future economic policy but also on Japan's national security and foreign policy.
I think there may be differing views within the Japanese government: while the Ministry of Finance is primarily responsible for coordinating exchange rate policy with the US authorities, Prime Minister Takaichi herself may not regard the weak yen or falling JGB prices as being especially serious problems.
Under such circumstances, I suspect even the exceptional step of coordinated Japan–US intervention without a crisis will not prove to be the breakthrough event needed to clearly reverse the yen's decline.
Furthermore, the coordinated intervention has left Japan significantly indebted to the US, raising concerns that this could place constraints not only on future economic policy but also on Japan's national security and foreign policy.
Profile
-
Takahide KiuchiPortraits of Takahide Kiuchi
Executive Economist
Takahide Kiuchi started his career as an economist in 1987, as he joined Nomura Research Institute. His first assignment was research and forecast of Japanese economy. In 1990, he joined Nomura Research Institute Deutschland as an economist of German and European economy. In 1996, he started covering US economy in New York Office. He transferred to Nomura Securities in 2004, and four years later, he was assigned to Head of Economic Research Department and Chief Economist in 2007. He was in charge of Japanese Economy in Global Research Team. In 2012, He was nominated by Cabinet and approved by Diet as Member of the Policy Board, the committee of the highest decision making in Bank of Japan. He implemented decisions on the Bank’s important policies and operations including monetary policy for five years.
* Organization names and job titles may differ from the current version.