WASHINGTON — The Japanese yen strengthened 4.5 percent against the U.S. dollar this week, reaching 148.50 yen per dollar — its largest rebound in eight months — after the United States Treasury and the Federal Reserve acted in concert with Japan's Ministry of Finance to reverse the currency's slide.
The appreciation reverses a multi-year depreciation trend. The yen lost over 25 percent of its value against the dollar since early 2024, falling from 120 yen to above 155 yen per dollar at its weakest point last month. That sustained weakness fueled imported inflation in Japan, pushing consumer prices higher despite the Bank of Japan's ultra-loose monetary policy.
Treasury Secretary Scott Bessent said the joint effort aimed to restore orderly conditions in global foreign exchange markets. The Federal Reserve provided technical and logistical support, facilitating the sale of dollars for yen. That direct market action supplemented repeated verbal warnings from Japanese officials about excessive currency volatility.
The mechanism involved Japan's Ministry of Finance instructing the Bank of Japan to sell U.S. dollar assets from its foreign reserves and purchase yen. Market analysts estimate the operation exceeded $40 billion, based on changes in the Bank of Japan's balance sheet data released this week.
This week's intervention is the first coordinated U.S.-Japan currency action since 1998, when a similar effort supported the yen during the Asian financial crisis. Japan's inflation rate hit 3.1 percent in June. A weaker yen raises the cost of imported energy and raw materials, compressing corporate margins in manufacturing and automotive sectors and eroding household purchasing power in a nation grappling with stagnant wage growth.
The yen's rebound also eased pressure on other Asian currencies. The South Korean won and Chinese yuan frequently face depreciation when the yen weakens sharply, as regional trade dynamics shift.
Critics argue currency interventions offer only temporary relief without addressing underlying economic divergences. The Bank of Japan holds its negative interest rate at -0.1 percent, against the Federal Reserve's target range of 5.25-5.50 percent. That differential remains the structural driver of yen weakness, sustaining carry trades that push the currency lower.
Bank of Japan Governor Kazuo Ueda has said the central bank will assess inflation and wage data before considering further policy adjustments. Sustained yen strength could give the BOJ room to pursue a more gradual exit from its accommodative stance.
Bessent said future interventions would depend on evolving market conditions and incoming economic data. The coordination signals renewed G7 focus on exchange rate stability and could set a precedent for managing volatility in other major economies facing similar pressures.
A stronger yen makes Japanese exports more expensive for U.S. buyers, a headwind for trade balances, while improving the repatriation value of yen-denominated earnings for U.S. firms operating in Japan.
