US Treasury sell-EUR/buy-JPY intervention on 31 July Report Interpretation

Overview

This FX Chart Alert estimates the size of the US Treasury's reported 31 July sell-EUR/buy-JPY intervention using weekly foreign-currency reserve data. Nomura arrives at roughly USD500mn, materially below the USD5–10bn amount cited in Bessent's memo.

Core views

Using US Treasury FX-reserve data as of 7 August and adjusting for currency valuation effects, Nomura finds clearer evidence of a sell-EUR/buy-JPY operation than in the prior week's data. From 31 July to 7 August, JPY securities fell by USD309.9mn while JPY deposits increased by USD833.9mn. On the EUR side, securities increased by USD19.8mn and deposits declined by USD508.1mn. Nomura does not treat the fall in JPY securities as part of the intervention. It suggests the decline may instead reflect the Treasury not reinvesting maturing yen securities or an unadjusted price-valuation effect on those securities. It therefore uses the net changes in currency exposure as the more suitable proxy: JPY exposure increased by USD524mn and EUR exposure fell by USD488mn. The broadly matched JPY increase and EUR decrease point to a roughly USD500mn paired sell-EUR/buy-JPY transaction on 31 July. If this estimate is correct, Nomura says it is substantially smaller than the USD5–10bn “Buy Japanese Yen” amount reported in Bessent's memo. The gap could cause the market to question the US Treasury's commitment to support Japan's Ministry of Finance.

Analysis framework

Nomura compares weekly changes in the Treasury's JPY and EUR reserve holdings between 31 July and 7 August, adjusts for currency movements against the US dollar, separates securities from deposits, and uses the net exposure changes on both currency legs as a cross-check for the implied paired intervention size.

Methodology notes

• Other

  Currency-valuation-adjusted reserve-change analysis

  Nomura adjusts reserve balances using the 31 July holdings and currency performance versus the US dollar through 7 August, then infers intervention size from the offsetting net EUR and JPY exposure changes.

Key data

• Estimated intervention sizeApproximately USD500mnEstimated sell-EUR/buy-JPY intervention on 31 July.
• Net JPY exposure changeUSD524mn increaseUsed as one proxy for the buy-JPY leg.
• Net EUR exposure changeUSD488mn decreaseUsed as one proxy for the sell-EUR leg.
• JPY securities changeUSD309.9mn decreaseNomura does not regard this as necessarily part of the intervention.
• JPY deposits changeUSD833.9mn increaseCurrency-valuation adjusted from 31 July to 7 August.
• EUR securities changeUSD19.8mn increaseCurrency-valuation adjusted from 31 July to 7 August.
• EUR deposits changeUSD508.1mn decreaseCurrency-valuation adjusted from 31 July to 7 August.
• Memo-reported sizeUSD5–10bnAmount cited in Bessent's memo, according to Reuters.

Impact & implications

Nomura argues that the reserve data support a much smaller intervention than the amount cited in Bessent's memo. It says this discrepancy could affect how markets assess the US Treasury's willingness to assist Japan's Ministry of Finance.

Risks

• The JPY securities decline may reflect non-reinvestment of maturing yen securities or an unadjusted price-valuation effect rather than intervention activity.
• If the estimate is accurate, the discrepancy with the USD5–10bn memo figure could lead markets to question US Treasury commitment to help the Ministry of Finance.