Days after the U.S. and Japan conducted their first joint foreign exchange intervention since 2011, JPMorgan warned that the Treasury Department faces constraints in its financial capacity to sustain such interventions.
Days after the U.S. and Japan carried out their first joint foreign exchange intervention since 2011, JPMorgan Chase warned that the U.S. Treasury has limited readily available liquidity to maintain such interventions, highlighting a gap between Washington’s stated commitment and the actual financial firepower to back it up.
Limited firepower for modest FX interventions
According to a report published Saturday by JPMorgan strategists including Junya Tanase, as of June, the U.S. Treasury’s Exchange Stabilization Fund (ESF) held approximately $13 billion in euro-denominated assets and $25.5 billion in dollar-denominated assets. This pales in comparison to Japan’s scale of intervention, which has deployed roughly $35–60 billion for yen-buying operations between 2022 and 2026.
The bank noted that the Treasury could expand its intervention capacity to as much as $187 billion by converting IMF Special Drawing Rights (SDRs) into dollars and swapping other foreign-currency assets. If the Federal Reserve participates, this capacity could effectively double. However, JPMorgan pointed out that the ESF’s resources are limited and that additional funding would likely require congressional appropriation—a process expected to entail political uncertainty and take time.
Background: A historic week
This assessment comes after an extraordinary week in the foreign exchange market. On Friday, July 31, the yen fell to its weakest level against the dollar since 1986, prompting Japan to sell an estimated $52.8 billion to support the yen. The following day, the Financial Times first reported that the Federal Reserve Bank of New York, acting on behalf of the U.S. Treasury, sold euros to buy yen—marking Washington’s first direct intervention in support of the yen in over a decade.
Treasury Secretary Scott Bessent acknowledged the coordinated intervention on Sunday, stating in a social media post, 'Friday’s coordinated foreign exchange action was aimed at countering disorderly movements in the yen.' The Treasury Department also declared it would 'not hesitate to participate in future joint interventions.' Japan’s Finance Minister Satsuki Katayama similarly pledged continued cooperation.
The limits of coordinated intervention
JPMorgan’s analysis offers a sober perspective on this show of unity. The bank noted that past U.S. foreign exchange interventions have typically ranged between $1 billion and $2.5 billion, citing the 1998 U.S.-Japan joint yen-buying intervention as an example. That intervention occurred only once, and the USD/JPY rate returned to pre-intervention levels within a few weeks. While JPMorgan’s strategists acknowledged that Washington’s proactive stance has reduced the risk of USD/JPY breaking above 164, they stated it is unlikely the yen would surge sharply enough—solely due to joint intervention—to break below 150.
This analysis suggests that while U.S. participation lends credibility to Japan’s efforts, Japan itself remains ultimately responsible for sustaining the yen’s defense.
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The US dollar posted its steepest decline since April, driven by coordinated US-Japan foreign exchange intervention, fading expectations of further Fed rate hikes, and easing tensions with Iran.
The US Dollar Index fell 1.5% in early Asian trading on Monday, dropping to around 99.7 and slipping below the key 100 level for the first time in several months, as coordinated US-Japan FX intervention and easing geopolitical tensions weighed on the greenback.
Intervention sparks comparisons to the Plaza Accord
Reports that the United States and Japan jointly intervened in the foreign exchange market to strengthen the yen accelerated the dollar’s decline. The move immediately drew comparisons to the 1985 Plaza Accord. President Donald Trump described the joint intervention as a 'gesture of friendship,' while Treasury Secretary Scott Bessent stated they would 'enter currency markets without hesitation.' The Nikkei reported that authorities sold dollars, whereas the Financial Times reported that New York-based banks sold euros.
According to analysts citing Bloomberg data, this intervention triggered the fastest unwinding of net long dollar positions since 2015. The EUR/USD pair broke above the 1.1370–1.1470 range, bringing the next resistance levels at 1.1540 and 1.1585 within reach.
Fed skepticism and Iran diplomacy add downward pressure
The dollar posted its worst monthly performance since April in July, despite hawkish comments from Federal Reserve officials. Three FOMC members who dissented—Neel Kashkari, Beth Hammack, and Lorie Logan—advocated for gradual rate hikes rather than aggressive tightening, undermining Chair Kevin Warsh's stance. According to the CME FedWatch Tool, market-implied odds of a September rate hike have declined to 64.7%, down from approximately 77% before the Fed’s July meeting.
Analysts at Commerzbank noted that the dollar is 'unlikely to see as many rate hikes as the market currently prices in,' adding that easing geopolitical risks removes a key support pillar for the currency. ING pointed out that the market’s lack of clarity on the direction of US interest rates is hindering sustained dollar strength.
Geopolitical shifts reduce safe-haven demand
On Sunday, President Trump announced he had called off an attack on Iran and that talks between the two countries would begin on Monday, suggesting a possible imminent agreement on reopening the Strait of Hormuz. Hopes for easing Middle East tensions reduced the dollar's appeal as a safe-haven asset, and oil prices fell in tandem.
Market attention has now shifted to Friday’s U.S. employment report, with economists expecting non-farm payrolls to rise by 91,000 in July and the unemployment rate to edge up to 4.3%.
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