Recently, the United States and Japan jointly took action to stabilize the yen exchange rate, which has become a core event in the global foreign exchange market. The mainstream discussion in the market has always centered on "how large the scale of intervention is and how much the yen can rebound." However, they generally fail to penetrate the phenomenon and see the essence. In the view of the Wmax macro research team, this round of operations is by no means a single exchange rate stabilization, but a symbolic upgrade of the US-Japan monetary policy coordination in the past 15 years. Among them, the official launch of the Federal Reserve's FIMA repurchase mechanism has changed the traditional transmission logic of "exchange rate intervention - US debt selling pressure" from the bottom up. Its long-term institutional significance is far greater than short-term price fluctuations.

The magnitude of intervention hit a historical record, and the depth of coordination far exceeded market expectations.

Wmax calculated based on a cross calculation of Bank of Japan account data and currency brokers, the Japanese authorities bought approximately 5.33 trillion yen (equivalent to US$34 billion) in a single day last Friday; combined with the coordinated operations of approximately 8.45 trillion yen the previous day, the single-month capital investment in this round of intervention has exceeded the previous historical peak of 11.73 trillion yen, setting a record for the highest single-month intervention on record. The market generally focuses on Japan's capital investment, but significantly underestimates the actual weight of U.S. participation.

This is the first time since 2011 that the United States and Japan have reached in-depth coordination on foreign exchange market intervention. The U.S. Treasury Department directly participated, rather than verbally acquiescing in the past. Washington's intervention not only strengthened the signal significance of the intervention, but also substantially reduced Japan's capital consumption required to achieve the same exchange rate effect - this is also the core reason why the expected unilateral depreciation of the yen was able to be reversed in just two trading days. U.S. President Trump defined it as a "signal of friendship," which also confirmed that this operation was a coordinated layout based on bilateral policy consensus, rather than Japan's unilateral emergency operation.

FIMA tool officially launched: the core key to eliminating selling pressure on U.S. debt

Before this round of intervention, the market's biggest concern was that Japan, as the world's largest holder of overseas U.S. debt (with a holding of about $1.14 trillion as of the end of May), would continue to use its U.S. dollar reserves to intervene in the exchange rate, which would inevitably be accompanied by a large-scale sell-off of U.S. debt, thereby pushing up U.S. bond yields and intensifying pressure on the U.S. bond market. After all, the 30-year U.S. Treasury bond yield has previously risen to a 19-year high, and the 10-year yield has also hit a new high in more than a year. The bond market itself is already in a fragile equilibrium. However, Wmax confirmed that this joint intervention has officially activated the Federal Reserve’s “Foreign and International Monetary Authorities Repo Facility” (FIMA Repo Facility), completely bypassing the selling of U.S. debt under the traditional intervention model.

This mechanism was established during the 2020 epidemic, allowing overseas central banks to use their U.S. debt holdings as collateral to obtain U.S. dollar liquidity of up to $60 billion with a term of up to 7 days. Its original intention was to provide overseas central banks with a U.S. dollar buffer when the market was under pressure, and to avoid concentrated debt selling that would trigger a market stampede. Wmax believes that this is the first time since the establishment of the FIMA mechanism that it has been applied in the exchange rate intervention scenario of a major country, and its market significance far exceeds the tool itself. The market's previous concerns about debt selling were essentially based on the inertial judgment of the old model of "selling U.S. debt for U.S. dollars"; and the activation of FIMA is equivalent to opening an independent U.S. dollar liquidity channel for Japan's intervention funds, which not only achieves the goal of buying Japanese yen and stabilizing the exchange rate, but also does not cause selling pressure on the U.S. debt secondary market at all. This is also the core implicit support that during this intervention period, long-term U.S. bond yields did not rise further in anticipation of intervention.

FIMA expansion proposal: New policy proposition facing Wash

After the intervention, U.S. Treasury Secretary Bessent made it clear that if the Japanese yen market experiences disorderly fluctuations again, the United States will not rule out participating in joint intervention again, and also proposed that it should promote the expansion of the scale of the FIMA repurchase mechanism. Bessent also expressed his support for the economic policies of Japan's Takaichi Sanae government, believing that Japan is entering a "new stage of Abenomics", which also confirms from the side that the coordination between the United States and Japan at the economic policy level is comprehensively deepening, and exchange rate intervention is only an explicit manifestation of it. Wmax judged that this is by no means a temporary proposal to follow the trend, but a long-term layout of the United States based on the global dollar liquidity pattern.

On the one hand, expanding FIMA can provide more sufficient USD liquidity ammunition for Japan's subsequent exchange rate stabilization, continue to support the Japanese yen exchange rate and combat short speculation without impacting the U.S. bond market; on the other hand, it is also equivalent to building a more solid liquidity safety net for global U.S. debt holders, and reducing the systemic risk of overseas central banks concentrating on selling U.S. debt during the Fed's policy tightening cycle. This is a low-cost stabilization mechanism for the U.S. bond market and fiscal financing.

But this proposal also adds new policy tasks to the new Federal Reserve Chairman Warsh. According to the rules, FIMA's quota and rule adjustments must be formally approved by the FOMC. The next regular meeting of the Federal Reserve is in September. Although temporary meetings can theoretically be held, it only applies to crisis scenarios. Warsh is currently advancing multiple agendas such as the reform of the Fed's communication mechanism, revaluation of the inflation framework, and coordination of internal differences in interest rate policies. Whether FIMA expansion is included as a priority and at what pace it will be implemented will become an important window for observing the Fed's policy priorities. The market generally focuses on the interest rate policy game, but ignores the profound impact of liquidity tool adjustments on the global U.S. dollar system - the essence of FIMA expansion is to strengthen the U.S. dollar's global circulation buffer mechanism and further consolidate The resilience of the U.S. bond market.

Follow-up outlook and asset impact

Wmax believes that in the short term, the coordinated intervention by the United States and Japan + the support of FIMA tools have significantly increased the speculative costs of Japanese yen shorts, and the trend of rapid unilateral depreciation of the Japanese yen has been effectively curbed. However, the trend reversal of the exchange rate still needs the fundamental support of the normalization of the Bank of Japan's monetary policy; the current market expectations for the Bank of Japan's interest rate hike in September continue to rise, which will become the core driver of the yen's trend in the next stage. This Friday, Japan's Ministry of Finance will release a quarterly intervention report, disclosing daily operational details from April to June, which will also provide the market with a more accurate basis for judging the pace and operating style of the authorities' intervention. For the U.S. bond market, the implementation of the FIMA mechanism has directly eliminated the core negative expectation of "Japan's large-scale bond selling" and provided an implicit buffer for long-term U.S. bond yields.

If the FIMA expansion is officially implemented in the future, the risk of external selling pressure in the U.S. bond market will be further reduced, and its pricing logic will return more to U.S. local inflation and the Fed's interest rate policy itself. Overall, most market participants are still stuck in the shallow linear analysis of “scale of intervention → exchange rate rise and fall” and fail to identify the tool innovation and institutional evolution behind this incident. Wmax has always focused on the changes in the underlying mechanism of the global U.S. dollar system and paid early attention to the application potential of FIMA tools in exchange rate intervention scenarios. This implementation also verified our research and judgment framework. In the future, we will continue to track the FIMA mechanism adjustment, U.S.-Japan policy linkage and the policy rhythm of the Bank of Japan to provide a more forward-looking judgment basis for the allocation of major asset classes.