US Dollar Falls 1% Against Japanese Yen After First US Japan Intervention

The US dollar tumbled sharply against the Japanese yen on Monday after US President Donald Trump and Japan Finance Minister Satsuki Katayama confirmed a rare joint intervention in the foreign exchange market. The dollar fell nearly 1 percent to around 156.34 yen after touching 163 yen, its highest level in nearly 40 years, days earlier.

The move is being hailed as the first coordinated US-Japan currency intervention in about 15 years, signalling both countries' determination to curb excessive volatility. The yen has been under pressure because the US Federal Reserve's higher interest rates have fueled the popular carry trade, encouraging investors to borrow cheaply in yen and invest in higher yielding US dollar assets.

Markets had suspected intervention last week when the dollar slipped below 160 yen. The yen later strengthened to around 155 per dollar, its highest level in about three months. Reuters estimates Japan spent 5.4 trillion yen (about 36.6 billion US dollars) on Monday after an earlier 59 billion US dollar intervention. Japan strengthened the yen by selling part of its dollar reserves and buying its own currency.

Katayama said Japan acted with the US Treasury Department to counter "excessive volatility" and warned authorities would intervene again if needed.

Trump said, "We have a good relationship with Japan... they wanted a little bit of help," calling the move "a signal of friendship" that was "also good for the world economy." Analysts say supporting the yen also helps reduce global market volatility and limits trade distortions caused by an overly weak Japanese currency.

The intervention could modestly support the Indian rupee by easing pressure from a weaker dollar and improving foreign investment sentiment. However, analysts say the rupee will still depend mainly on Reserve Bank of India action, crude oil prices and capital flows. They also caution that intervention alone is unlikely to reverse the yen's long term weakness unless the US Japan interest rate gap narrows.