Analysts from JPMorgan Chase have concluded that the funds immediately available for additional currency market intervention between the United States and Japan are limited.
According to a report by Bloomberg on August 2, JPMorgan strategists, including Junya Danase, stated that the liquidity assets of the U.S. Treasury's Exchange Stabilization Fund (ESF) are insufficient to support Japan's large-scale yen-buying interventions.
As of June, the ESF held approximately $13 billion in euro-denominated assets and $25.5 billion in dollar assets, totaling around $38.5 billion.
This amount is relatively small compared to Japan's currency market interventions, which have ranged from $35 billion to $60 billion between 2022 and 2026. This suggests that the available funds may not be adequate for prolonged U.S.-Japan market interventions.
JPMorgan noted that if the U.S. Treasury employs extraordinary measures, it could significantly increase its intervention capacity. By converting its Special Drawing Rights (SDR) holdings and exchanging foreign assets for dollars, the U.S. could theoretically mobilize up to $187 billion. Furthermore, if the Federal Reserve participates, the total intervention size could effectively double.
However, JPMorgan strategists cautioned that "the resources of the Exchange Stabilization Fund are limited, and additional funding would likely require congressional budget approval," adding that they do not foresee the Treasury being able to intervene without limits.
Historically, the scale of U.S. currency market interventions has typically ranged from $1 billion to $2.5 billion, which is significantly less than the liquidity assets currently held by the Treasury.
This analysis comes as the U.S. and Japan engage in their strongest coordinated efforts to defend the yen in decades. President Donald Trump recently expressed public support for Japan's efforts to stabilize the yen, while U.S. Treasury Secretary Scott Vessen acknowledged that the U.S. participated in market interventions to address disorderly movements of the yen. Vessen emphasized that the U.S. is prepared for additional coordinated interventions with Japan if downward pressure on the yen increases.
JPMorgan also highlighted that past U.S.-Japan coordinated interventions have not lasted long. The last joint yen-buying intervention occurred on June 17, 1998, and the scale of that intervention was relatively small and singular.
In that instance, the dollar-yen exchange rate returned to pre-intervention levels within weeks, and neither country repeated coordinated or unilateral interventions. JPMorgan assessed this as indicative of both nations' reluctance to engage in sustained market interventions.
JPMorgan concluded that the U.S. government's unexpectedly proactive stance has reduced the risk of the dollar-yen exchange rate exceeding 164 yen. However, both the U.S. and Japan do not appear to have intentions to significantly raise the yen, making it unlikely that coordinated interventions alone will consistently lower the dollar-yen exchange rate below 150 yen.
* This article has been translated by AI.
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