How Japan and the US Supported the Yen Last Week

Labs

BlogAboutContactLog<br>In<br>Request a<br>Demo

Research<br>How Japan and the US Supported the Yen Last Week

By Wojciech Gryc &middot; August 10, 2026 &middot; 8 min read

This past week, the US and Japanese governments worked together to support the Japanese<br>yen, increasing its value from about &yen;164 per dollar to &yen;158[1][2][3]. Much has been written about the intervention, and<br>we won't be arguing whether it was good, bad, right, or wrong; our goal is to understand the<br>actual mechanics of propping up the yen, and what we can learn when observing future<br>interventions.

Estimates say that Japan spent $53-$59 billion to support the currency[2][3], and we'll<br>likely learn about the US's intervention numbers in the coming weeks. US Treasury Secretary<br>Bessent's infamous &ldquo;to do list&rdquo; note to buy $5B-$10B of yen isn't clear on<br>whether this was a direct purchase or whether other approaches were taken. Following these rumors,<br>the US sold euros to support the Japanese currency[4].

How Japan Supports Its Currency

In direct currency transactions meant to manage the Japanese yen's exchange rate, the Ministry<br>of Finance (MoF) will do so via the Foreign Exchange Fund Special Account (FEFSA). In this case,<br>the MoF will manage the strategic decision-making and the Bank of Japan (BoJ) will act as the agent for<br>the transactions. Similarly, if the bank needs to make foreign currency transactions, it will do<br>so via a request to the MoF[5].

The Ministry of Finance pays for the above from its foreign currency reserves[6], and will eventually publish its formal intervention<br>announcements on its site[7]. Interestingly, this<br>monthly release was scheduled for July 29, so the latest intervention won't be published for<br>another month. Similarly, the Ministry's reserves only show a $377 million drop, implying the<br>settlement of the trade took place in August. We'll likely get confirmation of the<br>intervention in several weeks or months; it was only on August 6, 2026 that Japan confirmed its<br>May 2026 intervention to the tune of $74 billion[8],<br>though one could observe a similar magnitude shift in its foreign reserves back in its June<br>report.

The MoF, via FEFSA, tends to buy Japanese yen when it is valued too low by the MoF's<br>standards, and will sell it &ldquo;high&rdquo; when there is a recovery or values are too high;<br>this is the purpose of supporting the currency. This has made FEFSA a very profitable trader[9], potentially sitting on $330 billion in cumulative<br>P&L as of the end of 2025.

FEFSA operations are, of course, how the Japanese government directly intervenes in currency<br>markets. Managing the exchange rate via debt issuance, interest rates, or the trade balance are<br>outside the scope of this post. The Japanese government can also encourage (or, via changes to<br>laws, force) Japanese companies to buy more yen. For example, forcing companies to repatriate<br>earnings to Japan[10], forcing pensions and insurance<br>companies to invest more in Japan[11], or even encouraging citizens to open US dollar savings accounts. India recently began offering high-yield dollar accounts and has obtained $40 billion in<br>deposits[12]. For a discussion around these<br>opportunities and tradeoffs around the economy, see our other post from this week (The Tradeoffs Facing<br>Japan's Economy).

Enjoying this analysis? Join hundreds of AI,<br>geopolitics, and economics experts—we'll send 1–2 emails per week.

Additional information

Thank you! You're on the list.

Something went wrong—please try again.

How the US Supported Japan

The US has several ways to intervene in the currency market, the first of which is to directly buy<br>the foreign currency on the open market. This drives demand for the target currency up, but also<br>drives the price of the US dollar down.

The primary approach the US can use is via the Exchange Stabilization Fund (ESF)[13]. The Department of the Treasury can directly buy or sell<br>currencies via the ESF. It can also trade currency futures or swaps instead[14], though it appears this was not the strategy used at the end<br>of July[4].

The Federal Reserve also has the System Open Market Account (SOMA), which manages foreign exchange<br>reserves and can be leveraged to achieve &ldquo;the Federal Reserve's macroeconomic<br>objectives.&rdquo;[15]

In both the ESF and SOMA cases, the US focuses on two currencies: the yen and euro[16]; it does not actively hold balances of other<br>currencies in its reserves.

Figure 1: Secretary Bessent's infamouse &ldquo;to do&rdquo; list.

Central bankers, treasury secretaries, and other government finance professionals are astute<br>managers of expectations. If investors or speculators expect something to happen, this can also<br>help manage the currency in question. Given the power of the US Treasury, simply signaling the<br>willingness to intervene, when credible, can drive markets in the direction the Treasury wants.<br>Figure 1 shows the infamous &ldquo;to do&rdquo; list...