Dollar little changed, yen weakens but remains well above pre-intervention low

The U.S. dollar was little changed on Tuesday, as the big story in foreign exchange markets continued to be the yen. The Japanese currency weakened against the greenback, but was still well above the four-decade low it had hit before last week’s landmark intervention.

U.S. Treasury Secretary Scott Bessent earlier this week confirmed that Washington had stepped in and conducted the first joint buying of yen with Japan since 2011. This was also the first time the U.S. specifically stepped in to strengthen the yen since 1998. Bessent on Tuesday told CNBC that the U.S. had helped because any weakness in the yen could destabilize markets across Asia.

"Given the trade flows, given the size of the economy, given their contribution to the global savings market, [it is] very important to have a stable yen. The Japanese government understands that, and we are proud to stand with them in implementing their policies and help them stabilize the region,” Bessent said.

Before the latest intervention, the yen had slid to a forty-year trough against the dollar at 164. A sliding yen puts pressure on Japan’s import-heavy economy. Japan’s status as the singe largest foreign holder of U.S. Treasury bonds also makes fluctuations in the yen notable.

"Such is the currency’s decline this decade that both Washington and Tokyo are stepping in to support it, although America’s involvement is unlikely to be for altruistic reasons. Treasury Secretary Scott Bessent will be more worried about the prospect of Japan selling some of its huge U.S. government bond holdings than the debt and inflation woes of Prime Minister Sanae Takaichi," Russ Mould, investment director at AJ Bell, said.

Wall Street strategists noted that Washington’s explicit willingness to deploy resources removes the traditional "reserve ceiling" constraint that typically undermines unilateral intervention by single central banks.

To mitigate potential market disruptions, both countries’ finance ministries have signaled plans to utilize the Federal Reserve’s Foreign and International Monetary Authorities (FIMA) Repo Facility during subsequent market operations.

"Relief rallies should be limited and an opportunity to sell the cross on strength. The coordinated U.S.-Japan intervention – and officials’ warning that they stand ready to act gain – significantly raises the cost of fighting a stronger yen and puts a much firmer ceiling on USD/JPY," Elias Haddad, global head of markets strategy at Brown Brothers Harriman, said.

The USD/JPY pair was last up 0.4% to 157.76. 

At home, the U.S. dollar index, which tracks the greenback against a basket of six major peers, was essentially flat at 99.88. After posting a sizable decline last week driven by a combination of a clouded Federal Reserve rate outlook and the yen intervention, the dollar index has largely tread water.

Monetary policy watchers are keeping an eye on U.S. labor market data this week for further cues on rates. On Tuesday, the Bureau of Labor Statistics reported 7.359 million job openings in June versus an estimate of 7.454 million. May openings were revised lower to 7.537 million from 7.594 million. Openings had surged to 7.585 million in April, the highest since May 2024.