U.S., Japan and South Korea mount biggest coordinated FX intervention in nearly 30 years

Original author: Li Jia Source: Wall Street Journal The United States, Japan and South Korea carried out their largest coordinated foreign-exchange intervention in almost three decades this week, aiming to counter depreciation pressure on the Japanese yen and South Korean won. Markets also read the move as a U.S.-led effort to steady financial conditions in two key allies and contain broader risk spillovers. The operation centered on two major Asian currencies. Japan and South Korea supported their currencies by selling U.S. dollars. The United States, seeking to ease downward pressure on the yen without adding strain to the dollar, intervened through nondollar channels—selling euros and buying yen. Stress has been building across both markets. South Korea's KOSDAQ has slid to its lowest level since October 2022 amid a notable pullback in technology shares. The yen and won have also weakened against the dollar, stoking concerns that further local-currency declines could ripple through Asian assets. Investors have increasingly treated this three-way intervention not as routine FX smoothing, but as a de facto backstop for Japanese and Korean financial markets. The action came after sharp moves that pushed the yen and won higher. The Financial Times reported that on July 31 the U.S. Treasury, via the Federal Reserve Bank of New York, used Goldman Sachs and Morgan Stanley to sell euros and buy yen—its first direct intervention in the yen market in nearly 30 years. Earlier reports said Japanese authorities intervened on July 30, spending about 8.45 trillion yen (around $52.8 billion) in a single day. Reuters also reported that South Korea's FX authorities unusually entered the market the same day to sell U.S. dollars, helping drive a 2% daily gain in the won to its strongest level in nine months. Following the coordinated operations, USD/JPY quickly fell from above 162 to the 157–159 range, a decisive move away from levels associated with the yen's weakest point in 40 years. South Korea's Deputy Finance Minister Moon Jisung said Seoul is coordinating closely with Washington and Tokyo. Japan's Deputy Finance Minister for International Affairs Atsushi Mimura said U.S. support had "gone beyond mere moral backing." For markets, the key development was the United States moving from messaging to trading. Citing people familiar with the matter, the Financial Times said the New York Fed executed the euro-selling, yen-buying operation through Goldman Sachs and Morgan Stanley. Ahead of the intervention, the U.S. Treasury had flagged the possibility to several Wall Street institutions and stayed in contact with the European Central Bank. The New York Fed also signaled its intent through two consecutive days of so-called "rate checks." On Thursday it queried dealers for tradable levels in USD/JPY without immediately transacting, then followed on Friday with a rate check in EUR/JPY—an approach widely viewed as a prelude to official action. Bank of America Securities FX strategist Alex Cohen wrote that "exchange rate checks" have emerged this year as a tool that sits between verbal guidance and outright intervention, allowing policymakers to telegraph intent without deploying funds. He added that absent follow-through, markets may still test policymakers' credibility. Analysts noted the choice to act via EUR/JPY rather than USD/JPY, interpreting it as an attempt to influence the yen through nondollar channels—supporting the currency while avoiding additional pressure on the U.S. dollar. Japan has been active in the market in recent months. Official data and market estimates suggest that the July 30 operation deployed around 8.45 trillion yen (about $52.8 billion), following cumulative intervention of roughly 11.7 trillion yen between April and May. Some strategists argue the objective extends beyond exchange-rate stability to protecting asset markets tied to the AI and semiconductor ecosystem. Bank of America strategist Michael Hartnett described the three-way action as resembling a "Price Keeping Operation" (PKO) for the AI era, aimed at preventing sustained pressure on the assets of Japan, South Korea and other AI supply-chain allies. Hartnett said the U.S. is seeking to curb three risks: preventing a rapid yen decline from pushing Japanese government bond yields sharply higher; stopping financial stress from spreading further across Asian markets including Japan and South Korea; and limiting the impact of disorderly capital flows on the U.S. bond market. Market strain in South Korea has intensified, with the KOSDAQ at its lowest level since October 2022 and continued declines in major brokerage stocks. At the same time, the AI investment boom remains resilient. Bank of America data show semiconductor ETFs have drawn about $53 billion of inflows this year, even as the Philadelphia Semiconductor Index (SOX) has pulled back. Hartnett added that coordinated intervention alongside a market correction may indicate heavily leveraged trades are approaching an endpoint. Still, he said current policy emphasis appears focused on containing volatility rather than trying to reshape market trends through broad liquidity measures.