U.S. Treasury sells euros to support yen without notifying ECB

The U.S. Treasury conducted a currency intervention to support the Japanese yen by selling euros and purchasing yen, a move that the European Central Bank (ECB) was not notified of until after the transaction was completed on July 31.

This action is being viewed by some ECB officials as a breach of decades-old norms regarding consultation between Western monetary authorities. The decision to use euros instead of the traditional sale of dollars to purchase yen caused additional surprise. Using euros may have been intended to avoid signaling a desire for a weaker dollar.

The U.S. Treasury maintains that it has no obligation to coordinate decisions regarding the allocation of reserves from its Exchange Stabilization Fund (ESF) with foreign institutions. The intervention, technically executed by the Federal Reserve Bank of New York, coincided with significant spending by Japan to stabilize its currency. While the joint action by the U.S. and Japan temporarily strengthened the yen, the currency has since faced renewed weakness.