Japan’s foreign exchange chief: Closely coordinating with the US to address yen exchange rate fluctuations
As the Japanese yen suddenly strengthened last Friday, sparking market speculation about a possible joint intervention in the foreign exchange market by Japanese and U.S. authorities, Japan’s Ministry of Finance’s foreign exchange chief Atsushi Mimura stated that the Japanese authorities will closely coordinate with the U.S. side as needed and respond appropriately to fluctuations in the forex market.
According to Bloomberg, Mimura told reporters on Monday morning upon arriving at the Ministry of Finance that Japan will cooperate closely with the U.S. side whenever necessary, in line with the spirit of the joint statement by Japanese and U.S. finance ministers last September, and will continue to respond appropriately to exchange rate volatility. He declined to comment on market speculation that authorities conducted an exchange rate check last Friday.
Japanese Prime Minister Sanae Takaichi stated on Sunday that Japan will "take all necessary measures" to deal with speculative and highly abnormal exchange rate movements. Finance Minister Katsuki Katayama also said last Friday that authorities are monitoring exchange rate trends with a sense of urgency. These statements have reinforced market expectations that Japan may intervene in the forex market.
On Monday, the yen continued to rise, with traders remaining highly alert to possible intervention by Japan. At one point, the yen rose nearly 1% to 154.16 yen per dollar.
Last Friday’s Yen Volatility Triggers Intervention Speculation
The yen strengthened in New York trading last Friday after volatile movement in the hour following Bank of Japan Governor Kazuo Ueda’s press conference. The Bank of Japan kept its benchmark interest rate unchanged that day.
According to Bloomberg, insiders revealed that the New York Fed, at the direction of the U.S. Treasury Department, called major financial institutions last Friday to inquire about dollar-yen exchange rate quotes.
This so-called "exchange rate check" refers to the central bank asking traders about currency quotes against the dollar. While it is not an actual yen transaction, it is sometimes a precursor to intervention. The market interpreted this as a signal that Japanese and U.S. authorities are ready to join hands to curb the yen’s decline, triggering large-scale short covering of the yen.
Japan Spent Nearly $100 Billion in Four Interventions Last Year
Japanese authorities intervened in the forex market four times in 2024, spending nearly $100 billion to purchase yen when the yen's depreciation crossed the 160 yen per dollar threshold. This action established a rough defensive line for market participants—the level at which the Ministry of Finance may intervene again.
Last September, Japanese and U.S. finance officials reiterated in a joint statement their basic commitment to letting the market decide exchange rates and not aiming to gain a competitive advantage through currency values. However, the statement left room for intervention under certain circumstances, stating that intervention should be reserved for addressing excessive or disorderly movements in the forex market.
Market Alert to Possibility of "Joint Intervention"
If the Federal Reserve steps in to help Japan support the yen, this would mean intervention is no longer just a unilateral move by Japan. Analysts noted that the potential for joint intervention is reshaping investors’ risk appetite and may even evoke memories of a “Plaza Accord 2.0.”
As the Bank of Japan faces pressures to maintain bond market stability and curb inflation, this potential currency defense battle involving the U.S. could have profound effects on the dollar, U.S. Treasuries, and global risk assets. The market remains highly vigilant for possible intervention by Japan.
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