Japan’s yen is experiencing a significant surge, leading to a decline in the dollar across various markets. Investors are on high alert as rate checks raise concerns about the potential for the first joint U.S.-Japan currency intervention in 15 years. Following a surge on Friday, prompted by the New York Federal Reserve reaching out to traders regarding rates, the yen has strengthened an additional 1.2% to 153.89 during Monday’s trading session in Asia. The euro has reached four-month highs, while precious metals like silver and gold have surged to unprecedented levels, exceeding $100 and $5,000 an ounce, respectively. Haruna Tanaka says It is difficult to predict if an intervention will occur soon; however, current observations indicate that market participants are closing their short positions, anticipating that the yen will not reach 160 against the dollar. Over the long term, the yen and the dollar exhibit lateral movement due to the corporate demand for the dollar. Tim Kelleher says this marks the first instance in over ten years that the Fed has scrutinized a currency. They’ve made threats in the past, but taking the step to actually carry it out represents a significant shift in their modus operandi. We are currently experiencing a shift in the economic landscape … an observable trend against the U.S. dollar has emerged. There are discussions surrounding a potential Plaza Accord 2.0, which could have significant implications and indicate a weaker USD.

David Forrester says there appears to be a larger factor influencing the situation. The potential for intervention highlights a wider apprehension among investors regarding the desire of Japanese and U.S. authorities for a weaker USD. This, along with Trump’s unpredictable policymaking, such as the potential imposition of 100% tariffs on Canadian exports contingent upon a trade agreement with China, is diminishing the attractiveness of USD assets.
Moh Siong Sim says it conveys a powerful message … It is my belief that the market will respond with greater seriousness compared to situations where only the Ministry of Finance or the Bank of Japan is involved in monitoring rates. Given the infrequency of U.S. involvement, this situation can be viewed as a strategic initiative to address the weakening of the yen. “The depreciating yen has emerged as a concern … particularly due to its unpopularity among the public, as it is perceived to exacerbate the inflation issue. It seems that this intervention threat may serve as a strategy to address the yen’s weakness and avert its escalation into a political concern. Jason Wong says It represents an ongoing development from the trends observed last week. The Japanese yen exhibits strength amid the looming risk of intervention, leading to a squeeze on short positions in the currency. The risk premium associated with the USD is on the rise as investors express concerns regarding the direction of U.S. policy.

Eugene Epstein says the situation appears to be influenced significantly by the involvement of the Fed and the Treasury operating behind the scenes. One could contend that the recent intervention by the Treasury in the Argentinian peso demonstrates a genuine commitment to addressing these issues, indicating that their actions extend beyond mere verbal statements. While Argentina may not be Japan, the recent intervention by the Treasury in another currency pair demonstrates a clear willingness to take decisive action when necessary. As the rate checking in dollar/yen commenced, market participants became alert, recognizing the significance of the situation. Marc Chandler says the dollar/yen is experiencing significant movement, yet we are observing continued dollar selling throughout the market. This is not solely a movement in the yen. Currently, numerous events are unfolding in the U.S., including the protests in response to the recent shooting in Minnesota. Trump may be announcing the successor to Jay Powell this week. Market sentiment is currently apprehensive regarding both factors. The dollar has exhibited fragility; however, the rise in the yen has acted as the catalyst for widespread market sell-offs.”

Masahiko Loo says If a joint FX intervention occurs, the likelihood of a spring BOJ rate hike significantly increases. Support from the U.S. Treasury is expected to be contingent upon an accelerated BOJ rate increase and ongoing policy normalization, thereby solidifying U.S. Treasuries as Japan’s primary long-term reserve asset. “Bottom line: this is developing into a managed, policy-driven reset. The likelihood of a chaotic, systemic yen-carry unwind diminishes considerably. The key takeaway is the importance of discipline and coordination, highlighted by a credible soft cap at 162. Joey Chew says Given the frequency of joint intervention during the extended period from May 1989 to April 1990, it is important to recognize that U.S. involvement may not automatically serve as a transformative solution for the weakness of the JPY. Prashant Newnaha says Takaichi’s remarks and Mimura’s brief commentary confirm that the finance ministry maintains close communication with the U.S. The Treasury indicates that the market cannot dismiss the possibility of foreign exchange intervention by both Japan and the U.S. The market shows a tendency to short the yen; however, the potential for coordination indicates that it is not solely a one-sided wager. Carlos Casanova given the existence of two-sided risks. The mere expectation of potential intervention could, in itself, contribute to some strengthening of the currency. The Japanese yen is expected to find some stability, although the factors driving substantial appreciation are still constrained. Meanwhile, long-term yields are anticipated to continue facing pressure at their currently high levels.