The US involvement was driven by a desire to prevent Japan from disruptively selling large amounts of US Treasuries, which would have caused volatility and upward pressure on US interest rates. The goal was to maintain stability in US markets, not just to aid an ally.

The US and Japan are not trying to fix the Japanese economy's fundamental problems. Instead, they are artificially propping up the yen to ensure the unwinding of the carry trade is a slow, managed decline rather than a sudden, catastrophic collapse that would devastate the global economy.

By selling Euros from the Exchange Stabilization Fund to buy Yen, the Treasury indirectly lowered the DXY without selling US Treasuries. This clever maneuver protected the fragile US bond market, which is crucial for financing the capital-intensive AI boom.

The little-known FEMA repo facility allows foreign central banks to post US Treasuries as collateral to get dollars. This lets countries like Japan intervene in FX markets without fire-selling their bond holdings, thus mitigating stress on the US Treasury market.

The US Treasury's intervention was not just about the Yen's exchange rate or trade balance. A primary motive was to prevent Japan from being forced to sell its vast US Treasury reserves to fund its own intervention, which could create significant pressure on the US bond market.

The Bank of Japan's intervention was not just about the yen, but a strategic move to "punt for risk parity"—to reduce volatility and calm markets. By strengthening the yen, they stabilized US Treasury rates, which in turn supported equities, revealing a tug-of-war between central banks seeking stability and traders seeking volatility.

The Japanese Yen's persistent weakness is driven by the Bank of Japan's implicit choice to prioritize domestic financial stability, specifically in the government bond market, over the currency's value. This means that despite threats, FX intervention is a secondary tool, and the BOJ will allow the yen to "free float relatively more" to avoid bond market disruption.

The US coordinated with Japan on currency intervention not just to support the yen, but as a strategic move to manage US long-term interest rates. The Treasury believes excessive dollar-yen volatility spills over into Japanese Government Bond (JGB) yields, which in turn significantly influences the long end of the US Treasury curve, making yen stability a tool for domestic rate management.

The Fed's FIMA repo facility allows Japan to access its full trillion dollars in US Treasury reserves as cash for intervention without disruptively selling them on the open market. This creates a massive psychological deterrent against betting against the yen, even if not fully used.