THE DYNAMICS OF INTERVENTION IN YEN: A MARKET PERSPECTIVE

Paper Number :WP67/2026
Publication Date :Aug. 20, 2026

The coordinated intervention by Japan and the United States in late July 2026 to put a halt to JPY depreciation when it touched 163.85 had no recent precedent. Though the central bank intervention was largely expected, this coordinated intervention has given a strong signal of support to the Japanese Yen. The Japanese Yen, as a favoured carry-trade currency, is always in demand from an investment perspective, as investors can borrow in yen at a lower cost and invest in other currencies for a higher return. So, any increase in interest rates by the BoJ prompts investors to rapidly unwind their carry-trade positions, resulting in rapid appreciation of the Yen. This could be one of the intervention strategies the BoJ follows. However, despite the BoJ's recent interest rate hikes due to inflationary pressure and other macroeconomic indicators, Yen appreciation following the unwinding of the carry trade did not last long. Instead, the Yen has depreciated continuously, posing a threat to the Japanese economy. In response, Japan's Ministry of Finance and the US Treasury carried out a coordinated YEN-buying and USD-selling intervention, the first joint US–Japan operation of its kind since 1998. In this paper, we explore a few relevant concepts: 1) The dynamics of unilateral and coordinated intervention 2) The reasons of the 2026 intervention in the context of hike of recent interest rate, 3) use of FIMA Repo Facility by Japan and 4) the market reaction by a few major participants, for example Rabobank, MUFG/BTMU, Brown Brothers Harriman (BBH), and UOB Group. We conclude that though the joint intervention has contributed to the market participants, Japan may need to change its monetary stance for a prolonged impact on its currency movement.