The Japanese Yen exchange rate surges past 154! Short covering accelerates. How will the USD/JPY intervention trend develop?

The USD/JPY exchange rate surged sharply on January 26, breaking through the 154 level and triggering widespread market attention on the possibility of a joint intervention by the U.S. and Japan. As signs of a turning point in the yen’s movement emerge, industry players are beginning to assess how this trend might develop.

Signals from U.S. and Japanese Authorities — What Is Driving the Yen’s Rebound?

The market picked up on a key signal. On January 23, the Federal Reserve Bank of New York proactively contacted major financial institutions to inquire about real-time USD/JPY quotes. This move was widely interpreted by the industry as a prelude to the U.S. government preparing to assist Japan in stabilizing the currency market. Following this news, the yen promptly rebounded.

Background factors are also noteworthy. Japanese Prime Minister Fumio Kishida announced the dissolution of the House of Representatives on January 23, initiating an early election process. His promised tax cuts sparked fiscal concerns, causing Japan’s long-term government bond yields to hit historic highs. Against this backdrop, U.S. involvement in currency market coordination is seen as a necessary stabilizing measure.

Krishna Guha, Chief Economist at Evercore ISI, stated, “Even if the U.S. ultimately does not intervene directly, the signal alone is enough to accelerate yen short covering. Preventing excessive yen depreciation and stabilizing Japan’s bond market are mutual goals.”

Behind the Accelerated Short Covering — The Rarity of Joint Interventions

Cross-border coordinated intervention in the foreign exchange market is an extremely rare policy tool. Since 1985, such coordinated actions have only occurred six times, usually in response to systemic crises—such as during the 1997 Asian financial crisis or the 2011 Great East Japan Earthquake.

The concept of a “Plaza Accord 2.0” has stirred considerable market speculation. Historically, the Plaza Accord and the Louvre Accord involved large-scale policy cooperation among multiple currencies. Some traders believe that the current U.S.-Japan coordination could signal the beginning of a new wave of multilateral action.

Spectra Markets senior forex trader Brent Donnelly analyzed that the most likely development is that Japan’s Ministry of Finance will take actual intervention measures soon after. There is a certain probability that Japan, South Korea, and the U.S. could reach a framework agreement to jointly address excessive currency depreciation. Under these expectations, downward pressure on USD/JPY could persist for some time.

Keiichi Inokuchi, senior strategist at Risona Holdings, added, “The long-term yen depreciation trend is expected to pause temporarily. Market focus is likely to shift to the specific fluctuations of USD/JPY within the 150–155 range.”

Diverging Outlooks for Yen Exchange Rate — Three Possible Scenarios

Different institutions have varying forecasts for the yen’s future movement. Goldman Sachs adopts a relatively cautious stance, suggesting that unless the Bank of Japan shifts to a more hawkish policy stance or introduces new rounds of quantitative easing to stabilize the bond market, the yen and Japanese bonds will continue to face significant depreciation pressures.

Meanwhile, many analysts generally believe that short-term volatility in the yen exchange rate could increase. As the February 8 election results approach, market expectations regarding policy directions are still adjusting. The election outcome itself could serve as a key catalyst for changing the yen’s trend.

Overall, the yen’s exchange rate over the next month will be influenced by multiple factors. Signals of U.S.-Japan intervention, political uncertainties, and central bank policy expectations will collectively shape the currency’s trajectory during this period. Investors should closely monitor policy developments to adjust their outlook on the yen accordingly.