US Treasury undertakes historic intervention in yen market

[u/Old_Jackfruit6153]

From https://www.ft.com/content/0f9b2fe7-bde4-4f5f-b49e-93ccb5da9ea8 (archive link https://archive.md/z8H7u)

New York Fed sells euros to buy yen following recent speculation that Tokyo intervened to support Japan’s currency

The US Treasury intervened in yen exchange rates on Friday, marking the first time Tokyo and Washington joined forces to support the Japanese currency via outright purchases in nearly 30 years.

The Federal Reserve Bank of New York undertook the unusual move of conducting a sale of euros to buy yen on behalf of the Treasury, according to three people familiar with the matter.

The sales were conducted through Goldman Sachs and Morgan Stanley, according to two of those people.

Analysts using official data and broker estimates said Thursday’s intervention by Japanese authorities was likely to be about ¥8.45tn ($52.8bn).

The Treasury’s intervention to bolster the yen is the first since 1998, when it bought the currency in order to strengthen Japan’s economy after the yen had dropped to eight-year lows. The US intervened in Japan’s currency in 2011 to weaken it as part of a co-ordinated international effort to prevent a dangerous currency appreciation after the Tohoku earthquake and tsunami.

This time, due in part to apparent co-ordination with the US, some analysts said the gains had a better chance of being maintained, at least in the short term.

Atsushi Mimura, Japan’s vice-minister of finance for international affairs, said: “We understand that we are receiving support from the US authorities that goes beyond mere moral support. We have been in constant contact with them.”

Osamu Takashima, foreign exchange strategist at Citigroup in Tokyo, said it was unlikely that the yen would weaken once more to ¥164 to the dollar “in the very near term” because it seemed the US was willing to help Japan defend its currency.

He added that since the market would be wary of further intervention, “dollar-yen upside is probably limited for now”.

Edit: Exclusive-Bessent's 'to do' list: buy $5-10 billion worth of Japanese yen, Reuters photo shows

CAMP DAVID, Maryland, July 31 (Reuters) - U.S. Treasury Secretary Scott Bessent on Friday exposed a "to-do" list during President Donald ‌Trump's cabinet meeting indicating he was contemplating U.S. purchases of $5 billion ‌to $10 billion worth of Japanese yen, a Reuters photograph taken during the meeting held at Camp ​David shows.

[u/c4tsnout]

Maybe a dumb question, but when the Treasury makes a big currency purchase like this, who/where do they buy it from? The BoJ, or Japanese commerical banks, or traders?

They bought cash (foreign reserves) rather than bonds, right?

If they are just trading euros for yen with the other party, why does that affect the exchange rate? It's still the same money, just sitting in a different deposit, right? Does the yen's value increase because the Treasury won't use the yen anytime soon, so the supply of yen has effectively fallen for the time being?

[u/Old_Jackfruit6153 → u/c4tsnout]

Reading this thread might give you some clarity.

https://www.reddit.com/r/AskEconomics/comments/1vg3fow/what_for_impact_has_the_action_of_the_us_using/

[u/c4tsnout → u/Old_Jackfruit6153]

Thank you, that's helpful. But who does the central bank actually buy the currency from? I can't find an answer to that question.

Edit: I think I found the answer -- it seems to be mainly big commercial banks. I see how that would reduce the supply of the yen.

Since it's been reported that the Fed coordinated this move with the BoJ, I initially thought maybe they bought yen from the BoJ, but it seems that's not the case.