The US Treasury Department has limited liquid resources to support joint currency intervention with Japan, though unconventional methods could significantly expand its firepower, according to JP Morgan.

Strategists including Junya Tanase noted in a report that as of June, the US Treasury's Exchange Stabilization Fund held approximately €13 billion in euro-denominated assets and $25.5 billion in US dollar assets. This amount is considered negligible compared to Japan's intervention operations, which ranged from $35 billion to $60 billion between 2022 and 2026.

This assessment comes as Washington and Tokyo have strengthened coordination on the yen issue, an effort unseen in decades, following President Trump's public support for Japan's efforts to stabilize the exchange rate. Treasury Secretary Bessent stated that the US intervened to help address "disorderly" movements in the yen and is prepared to assist Japan again if necessary, fueling market expectations of further coordinated action should the yen face renewed pressure.

JP Morgan indicated that the Treasury could significantly boost its firepower by converting its holdings of International Monetary Fund Special Drawing Rights (SDRs) into US dollars and swapping foreign currency assets for dollars. Under this scenario, the Treasury could theoretically access up to $187 billion, while Federal Reserve involvement could effectively double the scale of any intervention.

However, the strategists wrote: "We believe the US Treasury does not have unlimited intervention capacity, as the Exchange Stabilization Fund's resources are limited, and additional funding may require congressional approval." They pointed out that past US interventions typically ranged from $1 billion to $2.5 billion, far below the Treasury's current liquid dollar and euro holdings.

The strategists also noted that the last joint US-Japan intervention to buy yen occurred on June 17, 1998, and was relatively small in scale, executed only once. Although the dollar-yen exchange rate returned to pre-intervention levels within weeks, neither coordinated nor unilateral intervention occurred again, highlighting the limited appetite for sustained market operations by all parties involved.

Overall, the strategists believe that the US authorities' more supportive-than-expected stance should reduce the risk of the dollar-yen pair breaking above 164. Nevertheless, they consider it unlikely that coordinated intervention will drive a sustained yen appreciation below 150, as neither Japan nor the US appears intent on guiding the yen significantly stronger.