Coordinated yen-buying intervention aims to push USD/JPY below 155
MacroDigital Finance
Coordinated currency intervention allows two or more governments to buy an under-pressure currency simultaneously, increasing market demand and signalling that several authorities are prepared to commit reserves, according to BofA Global Research. Japan and the U.S. carried out coordinated yen-buying intervention on July 31, with the immediate objective of pushing USD/JPY below 155, a level that became a perceived floor after earlier Japanese interventions failed to break it. Japan typically funds yen purchases from its $1.3 trillion foreign-exchange reserve portfolio, which at the end of June included $162 billion in deposits and $929 billion in securities, much of which is believed to be held in U.S. Treasuries. Around $283 billion of the securities are estimated to mature within one year, and combined with interest income, Japan's reserves could generate roughly $27 billion in monthly liquidity without selling assets. Yet recent intervention may have exceeded ¥10 trillion over three trading days, at which scale the Ministry of Finance would probably need to sell securities, borrow against its Treasury holdings through the Federal Reserve's FIMA repo facility, or combine both approaches. FIMA permits foreign monetary authorities to exchange Treasury securities temporarily for dollars, reducing the need for outright bond sales, but Japan currently faces a $60 billion counterparty limit and the facility's relatively high cost may restrict its use. The U.S. Treasury can fund intervention through its Exchange Stabilization Fund, which holds dollars, Special Drawing Rights and foreign currencies, and the Federal Reserve can also match Treasury operations, though it is not required to do so. During the July action, Washington reportedly sold euros rather than dollars to purchase yen, and further operations may require direct USD/JPY selling once available euro reserves become limiting. Cooperation expands the perceived firepower beyond Japan's reserves and signals possible follow-up through faster Bank of Japan rate increases or fiscal changes, and analysts lowered their year-end USD/JPY forecast to 149 from 152 after the intervention.
