Japan and U.S. Mount Rare Joint Yen-Support Operation, Triggering Crypto Volatility

Japan and the United States carried out a coordinated yen-buying intervention around Aug. 1, a move not seen in roughly 15 years, as the currency slid to about 163 per dollar—its weakest level in four decades. Japan's Ministry of Finance confirmed the operation on Aug. 3 and indicated it may not be a one-off. Officials said they are prepared to step in again if needed, with the intervention estimated at about $36.58 billion. The yen's prolonged decline has been fueled by the wide gap between U.S. and Japanese interest rates. With the Federal Reserve keeping policy tight and the Bank of Japan maintaining relatively loose conditions, the yen has remained a popular funding currency for carry trades—borrowing low-yielding yen and reallocating into higher-yielding assets. Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama had recently criticized the currency's moves as "speculative and highly abnormal." U.S. President Donald Trump publicly backed the coordinated action, casting it as support for the U.S.-Japan partnership and a safeguard for the global economy. The last joint yen-buying effort between the two countries occurred in 2011 following the Tohoku earthquake and tsunami. The intervention also rippled through risk markets via the carry trade. When the yen rises, leveraged positions funded in yen can quickly turn unprofitable, forcing traders to buy back yen to close positions—often reinforcing the move and accelerating deleveraging. Market watchers reported heightened volatility in Bitcoin and Ethereum after the intervention. Earlier episodes underscore the transmission channel. In July and August 2024, a smaller carry-trade unwind contributed to a broader risk-asset selloff, with Bitcoin falling sharply over a matter of days. With the yen near 163 per dollar before the latest action, carry positions had likely built up over an extended period. Traders are now focused on durability. While $36.58 billion is a sizable operation, Japan's reserves cannot support repeated interventions indefinitely without a shift in Bank of Japan policy. If the BOJ keeps rates unchanged, intervention may slow the move rather than reverse the trend. Japan's unilateral interventions in 2022 and 2024 bought time but did not permanently halt the yen's decline. The joint nature of the latest action alters the signal. U.S. participation is viewed as a stronger deterrent than Japan acting alone, suggesting Washington may see excessive yen weakness as a broader systemic risk.