The U.S. Treasury on Friday alerted major banking partners that it may enter currency markets to shore up the Japanese yen and strengthen its exchange rate against the U.S. dollar, according to a person with knowledge of the communication.
That advisory was transmitted to principal banks through the Federal Reserve Bank of New York, which acts as the Treasury's executing agent for operations in financial markets. Sources said some banks were specifically instructed to stand ready with executable orders to convert Japanese yen into euros. The Treasury holds part of its foreign currency reserves in euros, the sources added.
Market participants have interpreted the notice as part of a potentially coordinated international effort to support the yen, with Japanese authorities expected to take part. The information arrived at a moment of heightened attention to currency flows and official activity.
In recent sessions the yen moved stronger, trading above 160 to the dollar on Friday after having been near 164 to the dollar on Thursday morning. Currency traders broadly attribute those gains to suspected purchases by Japanese authorities as well as to market speculation that U.S. officials might intervene.
Japan's Finance Minister Satsuki Katayama declined to provide details on Japan's market operations when asked on Friday. She acknowledged global concern over the yen's depreciation and said it was notable that U.S. Treasury Secretary Scott Bessent had highlighted the currency's undervaluation.
A London-based analyst, James Malcolm of JB Drax Honoré, cautioned that efforts by U.S. and Japanese authorities to coordinate intervention may not succeed. He contrasted the estimated size of suspected Japanese intervention - as high as $70 billion - with the modest degree of yen strengthening that followed, implying there is a risk interventions do not produce proportionate moves in the currency.
This report is based on information provided by people familiar with the Treasury's communication to banks and remarks from market participants cited above. The New York Fed's role as agent for Treasury market operations was highlighted in the notification process. Details on the timing and precise mechanics of any Treasury transactions were not disclosed by the sources.
Summary
The U.S. Treasury informed major banks via the New York Fed on Friday that it may conduct currency transactions to support the Japanese yen, asking some banks to prepare executable trades converting yen into euros. The action dovetails with indications of coordinated intervention with Japanese authorities after the yen strengthened to above 160 from near 164 the prior morning.