Schweizerische Nationalbank

Foreign exchange intervention remains an infrequent but powerful policy tool in major economies, according to Bank of America, with recent episodes involving the Japanese yen and Swiss franc highlighting how official actions can ripple across global markets, reserve holdings and U.S. Treasury trading. Authorities typically intervene only during periods of excessive volatility, significant currency misalignment or broader financial stress, and direct market action is often accompanied by policy guidance or official comments aimed at influencing investor expectations. In the United States, exchange-rate policy is set by the Treasury, with the Federal Reserve Bank of New York carrying out any operations on the government's behalf, and Washington has largely favored market-determined exchange rates, making intervention an uncommon event. Since 2000, the U.S. has participated in only two major coordinated currency operations, one to support the euro and another following Japan's 2011 earthquake and Fukushima nuclear disaster to stabilize the yen. Japan and Switzerland have been among the most active G10 countries in recent years, with Tokyo repeatedly stepping into the market since 2022 to support the yen, including likely operations this year after sharp moves in USD/JPY heightened concerns over imported inflation and financial stability, while Swiss authorities have also relied on intervention as part of monetary policy, with the Swiss National Bank either selling francs to curb excessive appreciation or purchasing the currency to help contain inflationary pressures depending on economic conditions. The research argues that coordinated intervention backed by broader economic policy tends to have the greatest impact, and official warnings and so-called rate checks can also influence currency markets before any transactions are executed. Such operations extend beyond foreign exchange markets, as they can alter central bank balance sheets, affect domestic liquidity and reserve assets, and influence U.S. Treasury yields and swap spreads when large reserve portfolios are adjusted. Even so, intervention alone rarely changes a currency's long-term direction, with sustained moves more often driven by shifts in economic fundamentals, monetary policy expectations, and investor sentiment.