Key Points
- The Japanese yen surged on Friday amid growing speculation of government intervention.
- The move was sparked by reports of “rate checks” by the New York Fed and a strong warning from the Japanese Prime Minister.
- There is speculation that the U.S. could join Japan in a coordinated intervention to strengthen the yen.
- The 160-per-dollar level is seen as a key trigger point for potential action.
The Japanese yen surged on Friday as traders grew increasingly nervous that the government would step in to halt the currency’s recent slide. The speculation was fueled by reports that the Federal Reserve Bank of New York had been conducting “rate checks” on behalf of Japan and by a strong warning from Prime Minister Sanae Takaichi about “abnormal” market moves.
“Rate checks are typically the last warning before such action takes place,” said one strategist.
The yen had been falling for weeks, approaching levels not seen since 2024. But on Friday, it reversed course and rallied as much as 1.75%, its biggest one-day gain since August.
The Takaichi administration seems to have a “much, much lower tolerance for speculative FX moves than their predecessors,” and traders are now wary of pushing the yen any weaker.
What makes this situation particularly interesting is the potential for the U.S. to get involved. The New York Fed’s report on rate checks has some traders wondering whether we could see a coordinated, “Plaza Accord II”- type intervention, where both Japan and the U.S. act together to weaken the dollar and strengthen the yen.
“When the US Treasury starts making calls, it’s usually a sign this has moved past a normal FX story,” said one chief investment strategist.
The U.S. has only intervened in currency markets three times since 1996, so a joint action would be a major event.
The Japanese government has intervened to support the yen in the past, spending nearly $100 billion in 2024. The 160-per-dollar level is seen as a rough marker for where they might step in again.
With a snap election on the horizon and a volatile bond market, the Japanese government is clearly on high alert. For now, the threat of intervention has been enough to scare off the yen bears.
