De-Dollarization Went Mainstream as Japan Lost $72B on the Dollar Spain Chose Yuan and Korea Sold

• De-dollarization went mainstream on July 29 as Japan spent $72B defending the dollar and still watched it hit a 40-year low while posting its biggest single-day drop since 2022
• Spain announced yuan trade with China and Korea sold US dollars in rare intervention on the same day the BOJ discussed a worst-case scenario where the dollar loses reserve status
• The won gained 5.8% against the dollar this month as the yen lost 0.9% with won and yen now decoupling after years of moving in lockstep against the dollar

De-dollarization moved from a talking point to a headline this week, and it happened fast. Japan spent $72 billion defending the Japan yen dollar rate between April and May, one of the largest currency intervention campaigns on record, and the yen still slid to its weakest level in four decades. On July 29, the Dollar posted its biggest single-day drop since 2022, a move some are already calling an early sign of a broader US dollar collapse narrative taking hold among traders. The same stretch of days brought news of a Spain yuan trade deal with China instead of Dollars, and South Korea sold US Dollars in a rare market intervention of its own. Three US allies, moving in roughly the same direction, within days of each other, and all of it circling back to one question, whether the Dollar’s reserve currency role is actually being tested in real time.

Why Three US Allies Moving Against the Dollar on the Same Day Is the Biggest Story Nobody Is Covering

Japan’s $72 Billion Wasn’t Enough

Japan’s Ministry of Finance is not in the habit of confirming its own operations, and it didn’t confirm this one either. But the market evidence was hard to miss. The Dollar fell as much as 3% against the yen on Thursday, its sharpest single-session drop since late 2022, moving from above ¥163 to an intraday low near ¥157.80 before settling around ¥158.6. This is the kind of Japan yen dollar swing that normally takes weeks to unfold, not hours.

Neil Jones, Managing Director of FX Sales and Trading at TJM in London, had this to say:

“The 400-point sell-off in the US dollar-yen strongly suggests further official MOF intervention to me. The yen is outperforming across the board. This is more than just a weaker dollar.”

Roberto Cobo Garcia, Head of G10 FX Strategy at BBVA, had this to say:

“There has been a sharp move lower in dollar/yen that strongly suggests official intervention. It appears Japanese authorities have taken advantage of the bearish momentum generated by the weaker U.S. data to sell dollars and support the yen.”

There’s also word that Japan and the US worked in tandem on this, not just Tokyo acting alone. US Treasury Secretary Bessent reportedly called the yen “very undervalued” and said “excess volatility is not healthy,” comments that surfaced around the same time Japan’s spending on yen purchases last quarter was put at roughly $73.4 billion, a record sum. And still, after all that spending, the yen closed out the quarter at a 40-year low, which is really the whole de-dollarization story in one line.

Also Read: India, Japan Eye Yen-Rupee Trade Settlement in Fresh De-Dollarization Push

What made it notable is that this wasn’t the first attempt. Between April 28 and May 27, Japan spent roughly ¥11.7 trillion, or about $73.8 billion, in what was described as the largest single intervention campaign ever recorded. It worked for a few weeks. By July 21, the Dollar was back above ¥163. The pattern repeated itself, and traders like Yuji Saito, Executive Advisor at SBI FX Trade in Tokyo, could tell the difference between organic volatility and a deliberate operation.

Yuji Saito had this to say:

“This is clearly different from the kind of move you see when rate checks are conducted. Looking at the chart, the upside was capped two or three times before the dollar started falling.”

The Rate Gap Nobody Can Paper Over

The reason interventions keep fading is structural, and analysts have been saying so plainly. Japan’s policy rate sits at 1.00%, its highest since 1995, while the Fed’s target range remains 3.50% to 3.75%. That roughly 260 basis point gap makes borrowing yen and buying US Treasuries a trade that keeps paying out daily, and no amount of spot-market buying closes that gap on its own, which is exactly why the dollar reserve currency debate keeps resurfacing every time Japan steps in.

Daisaku Ueno, Chief FX Strategist at Mitsubishi UFJ Morgan Stanley Securities, had this to say:

“Whether this will shift the trend toward a stronger yen remains doubtful. Speculation about a US rate hike in September persists, alongside safe-haven dollar buying. While speculative yen depreciation might be temporarily curbed, real demand and investment-driven dollar buying will likely continue.”

Robin Brooks, Senior Fellow at the Brookings Institution and former Chief Economist of the Institute of International Finance, had this to say:

“Doomed to fail because it treats the symptom (yen depreciation) and not the disease (too much debt). It’s my view that FX intervention is deeply counterproductive because it creates the illusion that nothing’s wrong when, actually, there’s a very serious crisis brewing.”

Goldman Sachs took the trade seriously enough in early July to raise its 12-month USD/JPY forecast to 165 from 155, and to recommend the yen as a funding currency for carry trades, not exactly a bet on yen strength.

Some traders are reading Japan’s rate decision to hold at 1% as a signal in itself, not just inaction. The thinking goes that by keeping rates flat, the Bank of Japan is effectively choosing to keep selling US Treasuries rather than add to its holdings, and that this could eventually push Japan’s 10-year yield up sharply, maybe from around 2.8% toward 4% within weeks. A jump like that would be big enough to rattle the bond market broadly, and some are framing it as the kind of shock that could tip into a wider sovereign debt problem if it spreads past Japan, feeding right back into the de-dollarization conversation that’s picking up steam this year.

Also Read: Surge in De-Dollarization Trade Reshapes Global Asset Allocation

Spain’s Yuan Trade Deal Landed the Same Week

While Tokyo’s currency fight was playing out, Spain announced its own Spain yuan trade arrangement, saying it would begin trading with China in Yuan rather than Dollars. It’s a smaller move on paper than Japan’s intervention, but symbolically it lands in the same basket, another US ally choosing to route trade away from the Dollar. It followed a broader trend that’s already visible in the Yuan’s own chart. The offshore Yuan has strengthened to around 6.74 per Dollar, its firmest level since February 2023, even as Chinese manufacturing data softened in July.

South Korea’s Won Is Decoupling From the Yen

South Korea’s move added a third data point to the de-dollarization story taking shape this week. The country’s authorities sold US Dollars in what was described as a rare market intervention, an action tied to the won’s sharp climb this month.

The won gained 5.8% against the Dollar in the period leading into late July, the strongest performance among major currencies, while the yen lost about 0.9% over the same stretch. That’s a real split. For years the won and yen moved almost in lockstep, with a one-year correlation coefficient as high as 0.9 as recently as late June. By July 24, the one-month correlation had flipped to minus 0.6.

Some of that shift is homegrown rather than dollar-driven. A $25.6 billion inflow tied to SK Hynix’s American depositary receipt listing pushed dollar-selling into Korea’s FX market, and foreign investors flipped from heavy stock selling earlier in the year to net buying in the back half of July.

Ha Geon-hyeong, a research fellow at Shinhan Securities, had this to say:

“Capital outflows through yen carry trades remain heavy because of the BOJ’s slow pace of rate hikes.”

Also Read: De-Dollarization Debate Grows as US Dollar Reserve Share Falls Below 45%

The Fed Backdrop Made the Timing Worse for the Dollar

None of this happened in a vacuum. The Fed held its rate steady at 3.50% to 3.75% on Wednesday, but three regional presidents, Kashkari, Hammack, and Logan, dissented in favor of a hike, an unusual three-way split that read as more hawkish internally than the headline decision suggested. Then Thursday’s GDP print came in soft, with the US economy growing at an annualized 1.5% for the second quarter, well under the 2.1% economists expected, adding more fuel to talk of a possible US dollar collapse if the trend continues into the fall.

Jonas Goltermann, Chief Markets Economist at Capital Economics, had this to say:

“The Japanese authorities may see yesterday’s muddled message from Warsh and consequent downward pressure on the dollar as an opportunity to shift momentum in dollar/yen.”

A Japanese analyst identified as Yuto has also said the Bank of Japan has internally discussed a worst-case scenario in which the Dollar loses its dollar reserve currency status altogether. That’s a heavier claim than anything the market data itself shows, and Yuto presents it as a scenario the BoJ is discussing rather than a forecast, but it’s the kind of detail that explains why traders are reading the intervention story as something bigger than routine currency defense.

Beyond just the reserve-status question, there’s a broader read going around that whatever happens with the Dollar specifically, countries are already positioning for a financial system that looks different than the one they’ve operated in for decades. That shows up as de-dollarization efforts, more local currency settlement between trading partners, central banks adding gold, and countries building new financial infrastructure outside the traditional Dollar-based system.

The US-China Call Behind the Scenes

There’s another thread worth mentioning here too. Treasury Secretary Bessent and US Trade Representative Jamieson Greer reportedly spent an hour on a call with Chinese Vice Premier He Lifeng, laying groundwork ahead of a planned September visit by Xi Jinping. The message from the US side was described as direct, essentially telling China to follow through on rare earth and agricultural commitments already made or continue facing pressure. The two sides also talked about setting up formal Trade and Investment Boards, while Washington raised concerns about Chinese actions that create risk for US companies. It’s being treated as the pre-game before the actual leaders sit down, and whether it turns into a real reset or just another round of managed tension won’t be clear until September.

What Friday’s Bank of Japan Meeting Can Change, and What It Can’t

The Bank of Japan’s two-day meeting wraps up Friday, and the rate decision itself is close to a formality. A Reuters survey of 87 economists found 86% expect the rate to hold at 1.00%. What matters more is the language in the Quarterly Outlook Report and how Governor Kazuo Ueda frames upside inflation risk. If the tone shifts toward faster hikes, the carry trade that’s been funding yen weakness gets squeezed a little. If it stays as is, Thursday’s bounce risks fading the same way the April-May campaign did, and the de-dollarization chatter tied to Japan yen dollar weakness will likely pick right back up.

Also Read: Russia and China Now Settle 95% of Trade Without Dollars as De-Dollarization Completes

There’s a political layer sitting on top of this too. Prime Minister Sanae Takaichi has appointed board members seen as leaning toward caution, and a Bloomberg survey of 52 economists found 59% expect her government to slow the pace of hikes even if inflation data would justify moving faster. A slower-hiking BoJ is, by definition, a BoJ that keeps the rate gap with the Fed wider, and the yen weaker, for longer.

FAQ

1. What is de-dollarization?

De-dollarization is the ongoing effort by countries to reduce their reliance on the US Dollar in trade, reserves, and cross-border settlements, shifting toward local currencies, gold, or alternatives like the Yuan instead. It picked up pace after the 2022 sanctions on Russia and has since spread to dozens of countries in varying degrees.

2. Why does Japan’s yen intervention keep failing to hold?

Because it treats price, not the reason for the price. A roughly 260 basis point gap between Japan’s 1.00% rate and the Fed’s 3.50% to 3.75% range keeps the yen-carry trade profitable every day it persists, and spot intervention only offers a temporary reset rather than a fix.

3. What would actually stop the yen’s slide?

A real narrowing of the US-Japan rate gap, whether through faster BoJ hikes or Fed cuts. The BoJ’s Friday meeting isn’t expected to deliver a hike itself, but the tone of Ueda’s language could shift how soon markets expect the next one.

4. Why does this matter for the Dollar’s reserve currency status?

No single week of intervention, a Spain yuan trade shift, and a Korean won intervention changes the Dollar’s dominant role on its own, but taken together they’re being read by some analysts and traders as early signs of a slower structural move, one where more countries hold options besides the Dollar without abandoning it outright.