Japan's Ministry of Finance: No yen intervention operations were conducted in January.

Data released by Japan's Ministry of Finance on Friday confirmed that authorities did not directly intervene in the foreign exchange market for most of January. Although the yen significantly appreciated from near the 160 level to the 154 range during this period, its rebound was mainly driven by market concerns over possible joint action by the US and Japan, rather than actual intervention.

Data shows that from December 29 last year to January 28 this year, Japan did not use any funds for foreign exchange intervention. This stands in sharp contrast to the situation in spring 2024, when Japan spent nearly 10 trillion yen (about $65 billion) to achieve similar adjustments.

This strategy has won precious breathing room for Prime Minister Sanae Takai's government, which faces an election test on February 8, since voter discontent over inflation fueled by yen depreciation has been a major focus. However, analysts warn that such reliance on the cooperation of US policies is significantly fragile and difficult to sustain; if the yen again approaches 160, Japan may have no choice but to initiate even larger actual interventions.

It is noteworthy that US Treasury Secretary Besant made a clear statement on Wednesday that the US “absolutely has not” intervened in the currency market by selling dollars against the yen, further weakening the market deterrence of joint action expectations.

Rate checks replace actual intervention

Market analysis generally believes that Japanese authorities conducted a rate check before the yen’s appreciation. This operation is usually done by the central bank contacting major dealers to ask for real-time quotes; though it does not involve actual trading, it is often implemented before formal intervention and can warn the market and curb speculation.

Trader reports show that rate checking by the New York Federal Reserve Bank actually helped strengthen the yen. Compared to unilateral action by Japan, the potential threat of joint US-Japan intervention has a stronger market impact, more effectively guiding exchange rate movements and suppressing speculative trading.

Japan's Finance Minister Satsuki Katayama has recently repeatedly cited the US-Japan currency agreement reached last September, stressing possible coordinated action with the US. After another surge of yen appreciation on Tuesday, she told reporters:

“We will continue to maintain close coordination with US authorities in accordance with the spirit of the joint statement and take appropriate action against exchange rate fluctuations when necessary.”

Tomoo Kinoshita, Global Market Strategist at Invesco Asset Management Japan, pointed out:

“Japan is currently handling the yen issue quite effectively. Statements from Trump and Besant have influenced market sentiment, but the key is that the yen has rebounded significantly from the dangerous zone around 160, and the Ministry of Finance has hardly used funds in the process.”

Conflicting US signals weaken deterrent effect

Trump's comments on Tuesday night further fueled speculation about joint foreign exchange intervention. He hinted at being able to easily manipulate the dollar's movement, saying, “I can make it move up and down like a yo-yo.” Trump's openness to a weaker dollar sparked speculation about the dollar entering a long-term downward trend, which also boosted the strength of various currencies, including the yen.

However, Secretary Besant’s stance undermines the deterrent of joint intervention. He reiterated that the US maintains a “strong dollar” policy. The conflicting signals from Trump and Besant may also cause the market to doubt the actual strength of policy coordination.

Tougher action may be needed after the election

The latest strategy of Japan’s Ministry of Finance has won the Sanae Takai government breathing room ahead of the election. But after the election, authorities may need to enter the market with large-scale intervention to send a stronger policy signal. Given that the Bank of Japan is not expected to raise rates until at least April, such action may become necessary.

Kinoshita pointed out that if Sanae Takai is elected, the yen could come under renewed pressure, as her aggressive fiscal policies have been seen by global investors as a reason to short the yen. He said:

“Some market participants still worry about a ‘Japanese version of the Truss shock.’ Concerns about fiscal sustainability have sowed the seeds for the yen’s renewed weakness.”

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