Japan and the United States just pulled off something they haven’t done in 15 years. The two countries executed a coordinated yen-buying intervention around August 1, pushing back against a currency slide that had taken the yen to roughly 163 per dollar, its weakest level in four decades.

Japan’s Ministry of Finance confirmed the move on August 3, making clear this wasn’t a one-and-done situation. Officials signaled readiness to act again if necessary, backed by an estimated $36.58 billion in spending to prop up the currency.

What happened and why it matters

The yen had been in freefall for months, driven by the yawning gap between US and Japanese interest rates. While the Fed has kept rates elevated, Japan’s central bank has maintained comparatively loose policy. That differential turned the yen into a favorite funding currency for carry trades, where investors borrow in low-yielding yen and park the money in higher-yielding assets.

Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama had been telegraphing their frustration for weeks, describing yen movements as “speculative and highly abnormal.”

US President Donald Trump publicly endorsed the coordinated intervention, framing it as a reaffirmation of the US-Japan partnership and a move to protect the global economy. The last time these two countries teamed up to buy yen was 2011, in the aftermath of the devastating Tohoku earthquake and tsunami.

The carry trade unwind and crypto’s collateral damage

Traders borrow yen cheaply, convert it to dollars or other currencies, and invest in risk assets, including crypto. When an intervention like this forces the yen higher, those trades suddenly become unprofitable. Borrowers rush to buy back yen to close their positions, which pushes the yen even higher, which forces more unwinds.

Crypto market observers have already noted significant volatility in both Bitcoin and Ethereum following the intervention. In July and August 2024, a smaller yen carry trade unwind contributed to a sharp selloff across risk assets, with Bitcoin dropping meaningfully in the span of days.

At 163 yen per dollar, the currency was at its weakest in 40 years, meaning carry trade positions had been accumulating for an extended period.

What traders should be watching

The $36.58 billion Japan reportedly spent on this intervention is substantial, but Japan’s foreign exchange reserves can only sustain this kind of spending for so long without broader policy changes from the Bank of Japan. If the BOJ stays put on rates, the intervention becomes a speed bump rather than a trend change. In 2022 and 2024, Japan conducted unilateral interventions that bought time but didn’t permanently reverse the yen’s decline.

The joint nature of this intervention changes the calculus somewhat. Having the US actively participating sends a stronger signal than Japan acting alone, telling the market that Washington views yen weakness as a systemic risk.