U.S. Surprises ECB with Euro-Yen Intervention to Aid Japan

The United States surprised the European Central Bank (ECB) last week with a historic intervention in the foreign exchange market to assist Japan.

Details of the Secret Operation

Washington informed its Frankfurt counterparts only after selling euros to buy yen, according to a report by the Financial Times, citing multiple sources familiar with the matter.

Treasury Secretary Scott Beshear and ECB President Christine Lagarde discussed the operation on Saturday, following the completion of the U.S. transaction on July 31st, one of the sources told the newspaper.

Some senior ECB officials considered the use of euros, rather than dollars, by the U.S. to be an unprecedented violation of long-standing conventions governing cooperation between Western monetary authorities, sources added to the FT.

The operation aimed to help Japan support the yen after the Japanese currency reached its lowest level in 40 years. Tokyo intervened last week by selling dollars and buying yen to curb its depreciation, which is sowing second-round inflationary effects.

Beshear and Japanese Finance Minister Satsuki Katayama warned earlier this week that they would not hesitate to intervene again in the yen market if necessary.

The Ministry of Finance of Japan has also indicated that it will utilize a Federal Reserve facility that allows central banks to obtain dollars using their holdings of U.S. Treasury bonds as collateral, without needing to sell those assets.