Japan’s foreign exchange director: We are in close contact with the United States to deal with fluctuations in the yen exchange rate

# Source: Wall Street Insights

By Zhao Ying

Atsushi Mimura, Director of Foreign Exchange at Japan's Ministry of Finance, stated that Japan will closely cooperate with the US side when necessary and continue to respond appropriately to exchange rate fluctuations in accordance with the spirit of the joint statement issued by the Japanese and US Treasury Secretaries last September. According to media reports, the Federal Reserve Bank of New York, acting on instructions from the US Treasury Department, called major financial institutions last Friday to inquire about the USD/JPY exchange rate quotes.

Against the backdrop of the yen’s sudden strength last Friday and market speculation that Japanese and US authorities might jointly intervene in the forex market, Atsushi Mimura, Director of Foreign Exchange at Japan's Ministry of Finance, said that Japanese authorities will closely coordinate with US authorities as needed to respond appropriately to foreign exchange market fluctuations.

As reported by Bloomberg, Mimura told reporters upon arriving at the Ministry of Finance on Monday morning that Japan will closely cooperate with the US side when necessary and continue to respond appropriately to exchange rate fluctuations in accordance with the spirit of the joint statement issued by the Japanese and US Treasury Secretaries last September. He declined to comment on market speculation about the authorities conducting a rate check last Friday.

Japanese Prime Minister Sanae Takaichi stated on Sunday that Japan will "take all necessary measures" to address speculative and highly abnormal exchange rate fluctuations. Finance Minister Satsuki Katayama also said last Friday that the authorities are monitoring exchange rate movements with a sense of urgency. These remarks have reinforced market expectations that Japan may intervene in the forex market.

The yen extended its gains on Monday, with traders remaining on high alert for potential intervention by Japanese authorities. The yen once rose nearly 1% to 154.16 against the US dollar.

## Yen’s Abnormal Volatility on Friday Triggered Intervention Speculation

The yen strengthened during the New York trading session last Friday, after experiencing sharp fluctuations within an hour following the press conference by Bank of Japan Governor Kazuo Ueda. The Bank of Japan kept its benchmark interest rate unchanged on the same day.

According to Bloomberg, sources familiar with the matter revealed that the Federal Reserve Bank of New York, acting on instructions from the US Treasury Department, called major financial institutions last Friday to inquire about the USD/JPY exchange rate quotes.

This so-called "rate check" is a practice where a central bank asks traders for quotes of a currency against the US dollar. While it does not involve actual trading of the yen, it is sometimes a precursor to intervention actions. The market interpreted this as a signal that Japanese and US authorities are ready to join forces to stem the yen’s decline, triggering large-scale short-covering of the yen.

## Japan Spent Nearly $100 Billion on Four Interventions Last Year

Japanese authorities intervened in the forex market four times in 2024, spending a total of nearly $100 billion to purchase the yen when the currency’s depreciation breached the 160 yen per US dollar mark. This move established a rough line of defense for market participants, indicating the level at which the Ministry of Finance may step in again.

Last September, Japanese and US fiscal officials reaffirmed their basic commitment in a joint statement to let markets determine exchange rates and not to target exchange rates for competitive advantage. However, the statement also left room for intervention under specific circumstances, noting that intervention should be reserved for addressing excessive or disorderly fluctuations in the forex market.

## Market Alert to the Possibility of "Joint Intervention"

If the Federal Reserve steps in to assist Japan in propping up the yen, it will mean that the intervention is no longer a unilateral move by Japan. Analysts pointed out that this expectation of potential joint intervention is reshaping investors’ risk appetite, and may even spark speculation about a "Plaza Accord 2.0".

As the Bank of Japan faces the dual pressures of maintaining bond market stability and curbing inflation, this potential US-participated exchange rate defense could have far-reaching impacts on the US dollar, US Treasury bonds, and global risky assets. The market is currently on high alert for possible intervention by Japanese authorities.

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