The U.S. is stepping in to help boost Japan’s yen for the first time in nearly three decades after the currency hit a 40-year low, but the intervention has an unusual feature: instead of selling dollars to buy yen, the New York Fed reportedly sold euros to fund the purchase.
The coordinated move on Friday lifted the yen to 157 to the dollar and marked the first time the U.S. and Japan jointly bought the currency since 1998 during the Asian financial crisis. In 2011, the U.S., alongside the G7, weakened the yen after the Fukushima disaster caused the yen to be too strong, threatening Japan’s export-reliant economy.
Japan is estimated to have spent $52.8 billion. The exact amount from the U.S. is unknown, though a photo of Treasury Secretary Scott Bessent’s notepad suggests a range between $5 billion to $10 billion.
But experts say the decision to use euros instead of dollars could backfire if fundamental issues with the yen aren’t fixed. In fact, the yen has been sliding against the dollar since 2012.
Mark Sobel, who served in the Treasury for four decades and is the U.S. chair of the Official Monetary and Financial Institutions Forum, attributed the yen’s weakness to Japan’s “overly accommodative” monetary policy, debt concerns and more recently Prime Minister Sanae Takaichi’s fiscal policy.
“The US is unwise to enter the market in support of the yen—even if it makes a small profit in doing so—unless it is part of a Japanese plan to tackle the fundamental issues driving yen weakness,” Sobel told Fortune over email. “After all, the Treasury’s Exchange Stabilization Fund isn’t a hedge fund.”
The dollar has already weakened a bit from Monday’s high after President Donald Trump and Japan’s finance minister confirmed the intervention.
The choice to go with euros instead of dollars could confuse markets and lead to more questions than answers about how effective the intervention would be, according to Robin Brooks, a senior fellow at the Peterson Institute for International Economics.
“This kind of twist in my opinion undercuts the efficacy of US participation,” Brooks wrote in a Substack post. “FX intervention is a confidence game. The last thing you want is to give markets any kind of reason to ask questions.”
He predicted the yen will resume its decline, citing Japanese bond yields that are being kept artificially low.
That’s because the Bank of Japan must keep yields in check to prevent the country’s massive debt burden from spiraling into a crisis, Brooks explained.
Edwin Truman, a former assistant secretary for international affairs at the Treasury, described using euros as “weird” if the objective was to strengthen the yen against the dollar, telling Fortune it would make more sense to sell dollars and buy yen.
“Selling a third currency would not be as effective as selling just straight dollars,” he said.
The main purpose of an intervention is to buy time, useful for creating “an inflection point” but not enough to “overturn fundamentals” like narrower U.S.-Japan rate differentials and a softer US economic backdrop, according to ING economics analysts Chris Turner and Michiel Tukker.
“Without that, even coordinated intervention risks being remembered as another attempt to slow the dollar’s rise rather than reverse it,” they wrote.
The yen purchase comes less than a year after Bessent used the ESF to help stabilize the Argentine peso ahead of the country’s midterm elections. Argentina ended up taking $2.5 billion and repaid the amount in full.
But the Argentina and yen interventions could mark a new era of U.S. foreign currency activism in global financial markets.
“Taken together, the Argentine and Japanese episodes suggest a Treasury that is becoming more willing to use the ESF in support of broader economic and geopolitical objectives,” Turner and Tukker wrote. “That marks a notable departure from the relative passivity that has characterised US foreign exchange policy for much of the last two decades.”
