The Japanese yen surged sharply after speculation emerged that US and Japanese authorities could jointly intervene in foreign exchange markets to defend the currency's value. After reports surfaced that the Federal Reserve Bank of New York conducted a "rate check" on yen exchange rates with major financial institutions, markets interpreted the move as a potential signal of coordinated intervention.
On January 23, the yen jumped as much as 1.75% intraday to 155.63 per dollar in New York trading, marking its largest single-day move since August last year, according to Nikkei and Bloomberg. The rally was triggered by rumors that the New York Fed had conducted rate checks with financial institutions regarding yen exchange rates. Rate checks are typically interpreted as a preparatory step before actual buying or selling intervention, allowing authorities to gauge trading levels and send warning signals to the market. Given that the Federal Reserve traditionally follows Treasury Department directives on foreign exchange matters, speculation spread that the US government might directly intervene in Japan's currency market.
Markets are focusing on the possibility that this could be a precursor to an unprecedented joint intervention with US support, rather than a unilateral Japanese action. Concerns over Japanese Prime Minister Sanae Takaichi's expansionary fiscal policies have caused Japanese government bond yields to surge, particularly in longer maturities, with signs of spillover into the US Treasury market. US Treasury Secretary Scott Bessent has been closely monitoring the sharp rise in yields and price collapse in Japan's ultra-long bonds, including 30-year maturities, and potential contagion to US Treasuries. When rising Japanese bond yields triggered US Treasury yield increases on January 20, Bessent expressed concern, saying it was "difficult to separate the spillover effects from Japan." Reports indicate Bessent recently discussed the Japanese bond selloff with Japanese Finance Minister Satsuki Katayama.
Japan's financial markets have been caught in a vicious cycle since Prime Minister Takaichi took office in October last year: concerns over aggressive fiscal policy including tax cuts leading to accelerated yen weakness, raising import price concerns, fueling Bank of Japan rate hike expectations, and driving bond yields higher. The falling yen triggers Japanese government bond selling, which in turn stimulates global bond yields.
This alignment of interests—the Trump administration seeking long-term bond yield stability and Japan's goal of halting yen weakness—has led analysts to suggest the US may tacitly approve or even actively support Japanese market intervention. "The fact that the New York Fed directly inquired about prices strongly suggests that any potential intervention would not be a Japan-only operation," said Bipan Rai, Managing Director at BMO Capital Markets. Leah Traub, Portfolio Manager at Lord Abbett, added that "given the previous US administration's negative stance on currency intervention, it appears the US has given Japan a green light for aggressive intervention."
However, some observers note that joint US-Japan intervention could weaken the dollar and stoke inflation, making large-scale action unlikely.
The US has directly intervened in currency markets only three times since 1996, most recently in 2011 when it joined G7 nations in selling yen following the Great East Japan Earthquake. Jason Furman, Harvard University professor, noted that "both US and Japanese authorities are currently dissatisfied with yen movements," but cautioned that "simple intervention alone will struggle to produce lasting effects without substantive policy changes to back it up."