The New York Federal Reserve Bank's rare "exchange rate check" over the past weekend, coupled with market speculation on a US-Japan joint intervention to stabilize the yen, has caused the yen to strengthen rapidly. BofA Securities believes this signal has altered market expectations about "who will act first," putting short-term pressure on USD/JPY and raising the risk of coordinated intervention.
USD/JPY Plummets: Intervention Expectations Repriced
During Monday's trading session, USD/JPY continued its decline from Friday, at one point reaching near 154, with the yen entering a strong zone not seen in nearly two months. The market broadly associates the volatility with intervention expectations due to the "exchange rate check."
BofA's View: US Signals Make Coordinated Intervention More Plausible
BofA noted in a report that the market had been more focused on whether Japan would intervene unilaterally, but this time, the signal from the New York Fed's forex desk (seen as a representative of the US Treasury) presents a new critical variable: if the yen weakens again, the possibility of coordinated intervention significantly increases.
BofA also gives a short-term "ceiling" assessment: such signals may make it harder for USD/JPY to climb back above 160 in the near term, especially with the Japanese elections happening around February 8, where market sensitivity to policy and exchange rate stability will be higher.
Possible Motives and Real Constraints: Deterrent or Real Action?
BofA speculates that the "exchange rate check" might serve multiple objectives simultaneously: for instance, preventing excessive dollar strength to maintain trade competitiveness, stabilizing the government bond market, and signaling support to Japan within a broader policy cooperation framework.
However, Reuters' analysis also warns that the threshold for real US-Japanese coordinated intervention is high: domestic US political and market impacts (such as a "sell US assets" sentiment, risk of higher US bond yields) would be constraints; Japan would also need broader international consensus for stronger actions.
Future Focus: The 160 Threshold, Inflation, and Central Bank Path
BofA anticipates that the medium-term upward trend of USD/JPY may not end yet. If it weakens again, Japan may still take more decisive unilateral action in the spring; moreover, the interest rate path (with BofA assuming two rate hikes by the BOJ and two rate cuts by the Fed in 2026) and US inflation performance will influence the probability of "coordinated intervention" moving from expectation to reality.
