US sold euros, not dollars, to buy yen in joint intervention

Japanese yen and US dollar banknotes. Japan and the United States recently conducted an unusual joint intervention to buy yen and arrest its slide. [Reuters]

The United States has in effect acknowledged that it sold euros — not dollars — to purchase yen during a recent joint currency intervention with Japan, a move analysts say was designed to lift the undervalued yen while minimizing any impact on the dollar.

Treasury Secretary Scott Bessent, speaking to CNBC on Tuesday, was asked about reports that the US had sold euros to buy yen. He said he had been "in close contact with European partners, including some finance ministers and central banks."

"We explained that this was simply a reallocation of foreign exchange reserves," Bessent said. "The euro is now much closer to its equilibrium price, and the real issue right now is that the yen is significantly undervalued."

Treasury Secretary Scott Bessent attends a meeting between President Donald Trump and Lebanese President Joseph Aoun in the Oval Office at the White House in Washington on July 21. [EPA]

Markets interpreted Bessent's remarks as an effective admission that the US intervened in currency markets by selling euro reserves and buying yen.

The joint intervention came late last month, when the US and Japan moved together in an unusual step to halt a sharp slide in the yen. The yen recovered after the intervention, with the dollar-yen rate pulling back.

Washington's decision to use euros rather than dollars is seen as a strategy to support the yen without undermining the dollar's value or its standing in global markets.

The Financial Times had earlier reported that the Federal Reserve Bank of New York carried out the transactions on behalf of the Treasury, selling euros and buying yen. The New York Times, citing market participants, reported that the US appeared to have drawn on its euro holdings to avoid the negative signal that direct dollar sales would have sent about confidence in the currency.

The episode is being cited as evidence that US currency intervention has grown more sophisticated. Rather than selling dollars directly — the conventional approach — Washington used a third reserve currency, the euro, to buy yen, achieving the desired lift in yen value without any direct effect on the dollar.

Markets also see the intervention as serving a broader strategic purpose beyond simple exchange rate defense: stabilizing financial markets through US-Japan coordination and limiting any shock to the US government bond market. Analysts note that the US had its own interest in preventing Japan from selling large quantities of US government bonds to fund yen-support operations of its own.

sjy@heraldcorp.com