The wolf has finally arrived! Japan intervenes for the first time in two years, yen surges, oil prices, US stocks, and US bonds move in tandem.

A foreign exchange intervention stirred up four markets: the dollar, oil prices, US Treasury bonds, and US stocks. On the night of April 30, Japan officially intervened in the foreign exchange market for the first time in two years. According to Reuters and other media citing informed sources, the Japanese Ministry of Finance instructed the Bank of Japan to sell US dollars and buy yen, with a scale of over 90 billion USD, making it one of the most aggressive single interventions on record. The yen soared 3% that day, and the USD/JPY dropped sharply from above 160 to 155.57, marking the largest single-day drop since 2022. The shockwaves of intervention spread rapidly. The US dollar weakened, Brent crude oil plummeted from a multi-year high of $126 per barrel, and the 10-year US Treasury yield fell accordingly. The drop in oil prices combined with the decline in yields opened the door for risk assets to climb—US stocks hit a record high that day, and the S&P 500 posted its largest monthly gain since November 2020. If you are long oil, you are most likely short yen. When your yen position explodes, you will sell oil futures to stop your loss. Spectra Markets president Brent Donnelly explained the market volatility this way. In other words, shorting the yen and going long on oil is a highly correlated position in the market, and the sharp rebound in the yen triggered a chain reaction of those positions being closed. [Image] Last Warning Before the Intervention This intervention was not completely unanticipated. On the night of April 30, Tokyo time, Atsushi Mimura, Deputy Minister for International Affairs at the Japanese Ministry of Finance, issued an unusually strong warning to the market, saying, "If you want to get out, this is the last advice." Finance Minister Satsuki Katayama had previously made it clear that "the time for bold action is approaching," and especially instructed reporters to keep their phones on at all times during the Golden Week holidays—this detail was interpreted by the market as a clear signal of imminent intervention. Neil Jones, Managing Director of TJM Europe Currency Sales and Trading, commented: "This is an alarm moment. My judgment is that the Ministry of Finance instructed the Bank of Japan to sell dollars against yen." It is worth noting that, according to Bloomberg citing informed sources, Japan had given prior notice to US economic officials before the intervention, in line with the G7 practice of informing each other ahead of exchange rate interventions. One Intervention, Four Markets in Motion The transmission logic of this intervention in the market is worth dissecting. First Step: Yen Soars, Dollar under Pressure. Japan’s large-scale selling of US dollars and buying of yen directly suppressed the US dollar index. [Image] Second Step: Oil prices fall. Brent crude had previously risen to more than $126 per barrel, the highest level since the Russia-Ukraine conflict in 2022. After the intervention, oil prices dropped sharply. Brent Donnelly, president of Spectra Markets, gave a direct explanation: "If you are long oil, you are most likely short yen. When your yen position is exploded, you'll sell oil futures to stop the loss." In other words, shorting the yen and going long on oil is a highly correlated market combo, and the sharp rebound of the yen triggered a chain of position unwinds. [Image] Third Step: US Treasury yields decline. The drop in oil prices directly eased inflation expectations, and the 10-year US Treasury yield fell accordingly. [Image] Fourth Step: Risk assets rally. The yield drop reduces the discount rate, and the decline in oil prices relieves economic pressure, boosting risk appetite. According to ZeroHedge, US equities rebounded more than 100 points from overnight lows, the S&P 500 hit a record high, and had its largest monthly gain since November 2020. [Image] This transmission chain is essentially a cross-asset domino effect triggered by a foreign exchange intervention. After the Intervention: Warnings Continue After the intervention, Japanese officials did not withdraw, but continued to put pressure on the market. At a press conference, Ministry of Finance Deputy Minister for International Affairs Mimura said: "I won’t comment on what we’ll do next. But I want to tell you, Japan’s Golden Week holiday has just begun." This statement was interpreted by the market as meaning that liquidity would be thin during Golden Week, and Japan might intervene again at any time. Mimura also said that Japan and the US "maintain very close contact" and both sides agreed to take action if necessary depending on market conditions. When asked if the market moves were still speculative, he replied: “My assessment of the market has not changed.” He also reiterated that for abnormal volatility in the crude oil futures market, Japan “already has the relevant conditions and is ready to act at any time”—he had previously mentioned multiple times that Japan might intervene in the crude oil futures market to prevent oil price volatility from affecting the exchange rate. Currently, the yen is at 156.99, still above the pre-intervention 160 level. SMBC Nikko Securities foreign exchange and interest rate strategist Rinto Maruyama judged that the yen will continue to face downward pressure due to inflation concerns caused by high oil prices, the Bank of Japan’s slow pace of rate hikes, and the hawkish stance of other central banks. Can the Intervention Remain Effective? The market is clearly divided on the effectiveness of the intervention. Shaun Osborne, Head of Currency Strategy at Scotiabank, pointed out: "The aggressive interventions by the Bank of Japan in 2022 and 2024 did cause a significant pullback in USD strength—but that required more than just one round of yen buying." Chris Turner, Global Head of Markets at ING, pointed out the key variable: "Given high energy prices, Japan’s significantly negative real interest rates and strong demand for the dollar, Tokyo cannot expect USD/JPY to fall continuously. The real variable is whether the US Treasury will get involved.” Earlier this year, in February, the Federal Reserve confirmed that its New York trading desk had, on behalf of the US Treasury, requested quotes for USD/JPY, which briefly boosted the yen. The US Treasury did not respond to requests for comment. During Golden Week (May 3 to May 5), the Japanese market is closed and liquidity narrows sharply, with history showing multiple episodes of sharp exchange rate fluctuations. Analysts warn that this window may again become a target for speculators and could trigger another official intervention. Risk Warning and Disclaimer The market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not account for individual users’ specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investments made accordingly are at one’s own risk.