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 sudden 3% downward move in the dollar-yen exchange rate instantly erased the annualized 2-2.5% yield that leveraged investors earned from the popular carry trade. This forced a massive, rapid unwinding of positions as a year's worth of gains vanished in hours.
Despite the intervention being a dollar-yen operation, traders see the euro-yen cross as the more strategic play. This is because the key 187.50 trigger level that prompted past and present interventions was in euro-yen, suggesting it's the real line in the sand for policymakers.
Interventions can temporarily scare investors out of positions but are not a sustainable solution. Without a subsequent shift in domestic monetary policy, such as the Bank of Japan hiking interest rates, the original pressures causing currency weakness will inevitably re-emerge.
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.
The yen is 25% undervalued long-term, and Japanese bonds now offer higher currency-hedged yields than US Treasuries. However, policymakers must first break the powerful momentum of a 45% depreciation over five years that has conditioned investors to continually sell the currency.