US Surprises ECB with Euro Sale to Aid Japan

The United States surprised the European Central Bank (ECB) last week by intervening in the foreign exchange market to assist Japan.

Details of the Unconventional Move

Washington informed ECB officials only after selling euros to purchase yen, according to a report by the Financial Times, citing multiple sources familiar with the matter.

Officials Express Concern

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

Breaking Tradition

Some senior ECB officials viewed the use of euros instead of dollars as an unprecedented breach of long-standing conventions governing cooperation between Western monetary authorities, sources added to the FT.

Purpose of the Intervention

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

Related Developments

Both Lagarde and Japanese Finance Minister Satsuki Katayama cautioned earlier this week that they would not hesitate to intervene again in the yen market if necessary. The Japanese Ministry of Finance also noted that it would utilize a Federal Reserve facility allowing central banks to obtain dollars using their holdings of U.S. Treasury bonds as collateral, without needing to sell those assets.