The signal of US-Japan joint intervention in the yen quickly spread around August 3rd.

Japanese Finance Minister Tsubasa Amagaki confirmed that the Japanese Ministry of Finance had coordinated with the US Treasury to buy the yen. US President Trump and Secretary of the Treasury Scott Beasley also confirmed US participation and stated that they do not rule out taking joint action again. Following the official announcements, the USD/JPY pair rapidly fell from last week's nearly 164 40-year high to around 155.20; the exchange rate recorded by AP on August 3rd morning was approximately 156.34.

The most important change in this round of market movement is not only Japan selling USD and buying JPY again, but the US moving from verbal support to actual coordination.

For traders who have long bet on yen depreciation, the original logic has not completely failed: US interest rates are still significantly higher than Japan's, and holding USD assets can still earn the interest rate differential. However, the risk structure of this trade has changed. In the past, the market mainly assessed the scale and duration of Japan's unilateral intervention; now, it must also consider US involvement, repeated operations by both sides, and the possibility of officials forming policy boundaries at specific levels.

US-Japan Joint Intervention Implemented, Yen Quickly Rebounds

USD/JPY Rapidly Falls from 164

The speed of the yen's rebound is direct evidence of coordinated intervention impacting market expectations.

At the end of July, the USD/JPY pair once approached 164, and the yen fell to its lowest level in about 40 years. A weak yen can increase Japanese export companies' overseas profits in yen terms, but it will also raise the cost of imported energy, food, and raw materials, further increasing household living costs and corporate operating pressures. As the exchange rate continuously broke through the previously considered sensitive ranges of 150 and 160, the Japanese government's political tolerance for depreciation has significantly decreased.

Japan has previously intervened in the market to buy yen individually, but the exchange rate often only rebounded in the short term. The familiar market script is as follows: the Ministry of Finance takes action, shorts temporarily cover, and then the US-Japan interest rate differential reattracts funds to US assets.

This time, the market is facing a different script.

The Japanese Ministry of Finance explicitly used the term "coordinated intervention," and Besent stated that the US Treasury will continue to communicate with the Japanese side and "will not hesitate" to participate in joint action again. Officials may not need to continuously inject large amounts of funds; as long as traders believe that the USD/JPY is close to 164, they may once again face bilateral intervention, and the continued pursuit of shorting the yen will significantly increase the tail risk.

$5 to $10 Billion Signal Exposure, US Moves from Verbal Support to Actual Participation

A photo taken by Reuters on July 31 shows Besent's notebook at the Camp David Cabinet meeting with the words: "To Do: Buy Japanese Yen (JPY) $5-10 bil.," meaning to buy Japanese yen worth $5 to $10 billion.

This notebook does not prove how much yen the US ultimately bought. At the time the photo was exposed, the US Treasury had not yet confirmed the specific amount. The key information it provided is that the US Treasury had at least seriously considered an actual-scale yen purchase operation, rather than just diplomatically supporting Japan.

Subsequently, the US and Japan officially confirmed joint intervention, further raising the market significance of this photo. Besent also publicly stated that the US is willing to take action again if necessary. $5 to $10 billion may not be enough to permanently change the global forex market's supply-demand relationship, but it is enough to make highly leveraged yen shorts recalculate their stop-loss points and position sizes.

The way in which intervention truly works is not just through official funds directly driving the exchange rate.

When the USD/JPY rapidly falls, investors borrowing yen to buy US dollar assets will incur exchange losses. Some high-leverage accounts need to top up margin, and some trend trading and option positions will trigger stop losses. The closing process requires investors to sell dollars and buy back yen, thereby amplifying the yen's short-term rally.

Therefore, quickly dropping from around 164 to the 155 to 156 range, which includes both official transactions and potentially concentrated deleveraging of arbitrage and trend positions.

Yen Shorts Begin to Retreat, Risk Transmitted to Global Assets

Yen Arbitrage Not Over, but Trading Odds Have Shifted

There has been talk in the market of the "end of yen arbitrage trading," but this assessment is still premature.

The Federal Reserve kept the federal funds target range at 3.50% to 3.75% on July 29, while the Bank of Japan maintained the short-term policy rate at 1% on July 31. Even without considering hedging costs, US short-term rates are significantly higher than Japan's, and the basic yield of borrowing yen and allocating dollar assets has not disappeared.

What has changed with coordinated intervention is the risk-return profile of this trade.

Previously, investors may have thought that Japanese unilateral intervention would only bring about temporary volatility, thus they were willing to rebuild shorts after a yen rebound. Now, they need to pay a higher risk premium for the possibility of US re-entry, an increase in intervention frequency by officials, and the potential for an early rate hike by the Bank of Japan.

Yen shorts may therefore reduce leverage, decrease positions, or buy more options for protection, but this does not mean that funds have completely abandoned the carry trade. As long as the US-Japan interest differential remains at a high level, each yen rebound may still face new selling pressure.

A more accurate assessment is that coordinated intervention has compressed the leverage space of yen shorts but has not yet eliminated the macroscopic basis for yen shorting.

US Treasuries Face Spillover Risk, but Transmission has Changed

The global impact of yen intervention is not only in the foreign exchange market but also involves how Japan raises dollar funds to buy yen.

US Treasury International Capital (TIC) data shows that as of the end of May 2026, Japan held approximately $1.143 trillion in US Treasury securities, making it the largest foreign holder. The TIC data is influenced by factors such as custodial ownership and does not precisely reflect ultimate ownership, but Japan's massive Treasury position remains a key indicator for observing intervention spillover risk.

The traditional operational chain is for the Japanese Ministry of Finance to use foreign exchange reserves to sell dollars and buy yen in the market. If there is insufficient existing dollar cash, theoretically, dollar assets including US Treasuries could be sold. Large-scale, sustained selling of US Treasuries could increase market supply and put upward pressure on US long-term yields.

But such a contagion is not inevitable.

Besides, Bernett revealed that the Fed's FIMA repo facility for foreign central banks and international monetary authorities played a role in this operation. The tool allows foreign official institutions to temporarily pledge their US Treasury holdings at the New York Fed in exchange for dollar loans, thus obtaining the necessary dollar liquidity for intervention without having to sell Treasurys directly. Bernett also suggested that this tool should be expanded in the future.

This means that one of the purposes of the US-Japan coordination may be to have Japan support the yen while trying to avoid a massive sell-off of US Treasurys and an increase in US funding costs.

Therefore, the US Treasury risk needs to be understood in two layers: in the short term, the FIMA facility can buffer against forced selling pressure; if the intervention scale continues to expand and the term keeps extending, Japan may still adjust its dollar asset allocation, leading to a more noticeable supply impact on the Treasury market.

Intervention Alters Short-Term Odds, Yield Differential Determines Long-Term Trend

Finance Ministry Buys Time, Central Bank Drives Trend

Coordinated intervention can alter short-term positioning but is challenging to solely determine the yen's medium to long-term direction.

The Bank of Japan has gradually been moving away from ultra-loose policies, with the policy rate raised to 1%. However, the pace of tightening is still constrained by domestic economic conditions, government funding costs, and the stability of the Japanese government bond market. On July 31, with an 8-1 vote, the Bank of Japan kept the rate unchanged, with only one member advocating for an immediate hike to 1.25%.

This puts the Japanese policy at a clear crossroads.

The Finance Ministry aims to prevent a rapid depreciation of the yen to reduce imported inflation and political pressure; however, the Bank of Japan cannot hike rates swiftly for exchange rate purposes, as this may increase Japanese bond yields, adding to the financing burden of the government, corporations, and households.

Intervention in this process is more like buying time: by creating two-way volatility and forcing shorts to reduce leverage, it paves the way for the Bank of Japan to gradually normalize its policy.

Yet, the exchange rate trend ultimately depends on the fundamentals. If the Bank of Japan continues to hike rates and US yields decline, narrowing the US-Japan yield differential, a yen rebound is more likely to sustain; if the yield spread remains high in the long term, the post-intervention gains may gradually erode.

Still a Long Way from a "New Plaza Accord"

The market has seen grand narratives such as the "New Plaza Accord" and the "End of the Yen Carry Trade Era," but the current facts are not enough to support these conclusions.

The Plaza Accord of 1985 involved major economies collectively advocating for an orderly devaluation of the dollar, encompassing broader policy coordination and global exchange rate realignment. The scope of this action is narrower, with the direct objective being to curb the yen's excessive, disorderly depreciation and avoid the spillover of exchange rate and bond market volatility to the global financial system.

At this stage, what can be confirmed is that the US and Japan have jointly intervened to buy the yen. Becket's notebook indicates that the US side had considered an operation in the range of $5 billion to $10 billion, and both parties have explicitly stated that they are prepared to intervene again. The USD/JPY pair promptly dropped from near 164 to the 155 to 156 range.

This was enough to shake up short-term trading but not sufficient to indicate that the yen has entered a long-term appreciation cycle.

What truly needs to be observed next are three things: whether the US will engage in actual transactions again, if the Bank of Japan will accelerate its rate hike pace, and whether the FIMA tool can allow Japan to continue receiving USD liquidity without significantly impacting the US bond market.

Until these questions are answered, yen bears will not completely disappear. However, it is now much harder for them to nonchalantly bet on Japanese intervention as merely a passing breeze as they did in the past.

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia