Editor's note: He Weiwen is a senior fellow at the Center for China and Globalization. The article reflects the author's opinions and not necessarily the views of CGTN.

The recent US-Japan coordinated intervention in the foreign exchange market aimed at supporting the yen, the first such action since the Asian Financial Crisis in 1998, produced an immediate impact. However, whether it can deliver a lasting recovery for the Japanese currency remains uncertain.

US Treasury Secretary Bessent disclosed a planned purchase of $5 billion to $10 billion worth of yen on July 30, and the BoJ (Bank of Japan) spent $52.8 billion purchasing yen, propping the currency up from 163 to 157.5 against the US dollar. The Federal Reserve Bank of New York started the "exchange rate check", triggering leading investors, including Goldman Sachs and JP Morgan, to buy yen in the New York foreign exchange market.

The recovery of the yen continued into early August, reaching157.65 per dollar on the morning of August 4, more than 4 percent stronger than its pre-intervention low of 164 yen per dollar.

The immediate trigger for the intervention was the yen's sustained decline, which has become increasingly difficult for policymakers to ignore. On July 24, the yen exchange rate was 163.71 to a dollar, down 9.7 percent from the same period a year earlier. During this period, the dollar broad exchange rate index stood virtually unchanged, at 120.7105 on July 24, 2026 vs. 120.4082 on July 24, 2025. Over the same period, the yuan strengthened 5.6 percent against the dollar, while the euro and pound declined by 3 percent and 0.6 percent, respectively. This comparison highlights that the yen's sharp depreciation has been driven by factors beyond broad US dollar movements, making it a growing concern for policymakers. BoJ, the Japanese central bank, had already intervened in the currency market in March, but the impact was limited.

The real worry for Washington is that Japan has little choice but to sell its dollar assets to support the yen, with US Treasury bills being its largest dollar-denominated asset, totaling $1.143 trillion in May 2026.

The massive sell-off of US Treasury bills will lead to a higher premium and, in turn, a higher debt service burden on the US federal budget. It will also increase volatility in global bond markets, threatening financial stability in the US. During the three months from February to May 2026, Japan cut its holdings of the US Treasury bills by $96.2 billion, largely related to the massive intervention by the BoJ to support the yen in late April to early May when it bought 11.73 billion yen ($73.6 billion). Meanwhile, the US national debt kept rising at $6-7 billion per day and broke the $40 trillion barrier on August 2. Hence, Washington's intervention is not for "friendship", as described by Donald Trump, but for its own interest.

Clever enough, the US Treasury Department and the Federal Reserve Bank of New York have not spent many dollars. Bessent just disclosed a note, showing Washington's stance of supporting the yen, while the Federal Reserve Bank of New York started an "exchange rate check", showing no tolerance for further market speculation against the yen. It also permitted the use of FIMA facility, meaning no need to sell the US Treasury bill. In real intervention, they were also clever enough not to sell dollars, but euros, to support yen. In a word, yen is supported by Washington, with a limited amount of dollars. It was Japan that has spent roughly $87 billion in late July to early August.

The US-Japan joint intervention is not a mere monetary and financial move, but also involves a strategic consideration. It is hard to understand why Washington has supported the yen but never the euro. In the late 1990's, the euro once broke parity with the dollar, nearly 20 percent off its level at $1.17 when it started in 1992. Washington just looked on. This time, Washington sold euros to support the yen, not worrying about the euro's fall. The euro is by far more important than the yen in the world monetary system. In June 2026, the euro accounted for 20.07% of world reserve currency and 21.88% of settlement, while the yen accounted for 5.8% and 3.66%, respectively.

It is widely estimated that the current yen rebound will be limited because the intervention does not address the deeper factors weighing on the currency. It rose to the 157 per dollar area on July 30 after the joint US-Japan intervention, then stayed at this level in the following trading days. There is little hope that the yen will return to the 140s in the coming months.

There are four fundamental factors for yen weakness vis-à-vis dollar. 

Firstly, the wide central bank interest rate gap remains a major factor behind yen weakness. The BoJ has kept the rate at 1%, which is a large jump compared with zero interest rates for decades, and there is little room for further rises. Secondly, tensions in the Middle East over the past few months have significantly disrupted Japan's energy supply, while the US has remained safe. The yen's strength will depend on the resolution of disruptions around the Strait of Hormuz. Thirdly, the economic fundamentals of Japan do not support a strong yen. Economic stagnation, deflationary pressures, and an aging population are unlikely to change significantly in the foreseeable future. Fourthly, the government may consider measures such as cutting the food consumption tax rate from 8% to 1% to cushion the impact of import inflation caused by yen weakness.

Due to Japan's extremely high government debt ratio, at 260% of its GDP, there are limited fiscal resources available to implement such measures.

The current US-Japan joint intervention to support the yen will most likely provide temporary relief, helping pull the yen from the 160s to the 150s. It remains to be seen if it could recover to the 140s, or the level of a year ago, and if the Asian currencies, especially the Republic of Korea won, could keep their rally. What deserves greater attention is whether global financial markets can remain stable after the joint intervention ends.

In view of the yen's continued weakness and the challenges facing the Japanese economy, an important question remains: Will joint US-Japan intervention occur again in the near future, or even become a new policy norm? It will depend on two factors: Firstly, whether the yen's decline becomes severe enough to threaten US economic and financial interests; Secondly, whether Washington continues to see strategic benefits from such intervention.

As explained above, the recovery of the yen is likely to be temporary, and underlying economic fundamentals continue to point to future risks. We should follow developments in world monetary markets and risks. Apart from possible future joint intervention by central banks, the International Monetary Fund should play a more important role in monitoring and coordinating central banks' efforts to maintain global financial stability, thereby supporting the world economy as a whole. 

(Cover via VCG)