Is the Japanese Yen's decline reversing? Signs of joint intervention by the US and Japan emerge

The joint signals from U.S. and Japanese authorities are changing the currency market landscape. In late January, the New York Federal Reserve contacted several global financial institutions to inquire about USD/JPY exchange rate quotes. This move was widely interpreted by the market as a sign that Washington is preparing to cooperate with Tokyo to stabilize the yen. As short positions in the yen accelerate to close, the USD/JPY exchange rate broke above 154, marking a significant turning point in the long-term depreciation trend of the yen.

Accelerating Short Covering and Policy Signals Behind the Rapid Rise in Exchange Rate

The recent rapid appreciation of the yen over the past month is directly driven by market expectations of policy coordination between the U.S. and Japan. Although the New York Fed’s inquiry did not involve direct intervention, it alone was enough to trigger a large-scale short covering in yen positions. According to Krishna Guha, Chief Economist at Evercore ISI, “Even if the U.S. does not actually intervene, such clear signals can accelerate position unwinding. Preventing excessive yen weakness and stabilizing Japanese bond markets have become shared goals for both sides.”

This is not an isolated event. Japanese Prime Minister Sanae Takaichi announced the dissolution of the House of Representatives and the start of an early election in mid-January, with tax cut promises raising concerns about Japan’s fiscal health. Japan’s long-term government bond yields hit record highs, further intensifying worries over the dual pressures on the yen and Japanese bonds. Against this backdrop, joint U.S.-Japan efforts to curb the yen’s decline seem inevitable.

Reemergence of the Plaza Accord? Historical Comparisons and Policy Considerations

Multinational coordinated intervention in the currency market is extremely rare. Since the Plaza Accord of 1985, similar-scale international policy coordination has only occurred six times, usually in response to major systemic shocks (such as the Asian financial crisis, the Great East Japan Earthquake) or broad cooperation involving multiple currencies (like the Louvre Accord). This historical context underscores the seriousness of the current situation.

Market observers hold differing views on future policy directions. Brent Donnelly, senior FX trader at Spectra Markets, believes the most likely scenario is that Japan’s Ministry of Finance will take actual intervention measures afterward. A secondary possibility is that Japan, South Korea, and the U.S. might reach some agreement recognizing that the yen and won have depreciated too much, and decide to work together to stabilize. Based on these scenarios, Donnelly expects the downward trend of USD/JPY to continue.

Keiichi Inoguchi, senior strategist at Risonna Holdings, believes that the ongoing yen depreciation trend will temporarily pause. He emphasizes, “The market’s focus will shift to the specific movement of USD/JPY within the 150 to 155 range.”

Diverging Views and Uncertain Future Exchange Rate Trends

However, Goldman Sachs remains cautious about the overall outlook. The firm notes that the strength of the U.S.-Japan signals alone may be insufficient; unless the Bank of Japan adopts a more hawkish monetary stance or initiates quantitative easing to directly stabilize the bond market, the yen and Japanese bonds will continue to face downward pressure.

This divergence reflects differing market confidence in a yen reversal. Whether the signals of U.S.-Japan intervention can translate into concrete policy support depends on developments in Japan’s domestic political situation and the central bank’s subsequent stance. With the February elections imminent, the interaction between exchange rates, bond markets, and politics will determine the future direction of the yen.