Yen extends rally as Japan PM Takaichi’s warning raises intervention risk

TOKYO – The yen extended its gain on Jan 26 as traders started the week on heightened alert for Japan intervening in the market following the currency’s recent slide.

The currency rose as much as 1.2 per cent to 153.81 per US dollar, the strongest since mid-November, following a warning to the market by Prime Minister Sanae Takaichi. That came on the back of signs on Jan 23 that the United States may join Japan to defend the yen.

Against the Singapore dollar, the yen rose 0.9 per cent to 121.333 as at 4.12pm.

Japan will closely coordinate with the US and act in accordance with their joint finance ministers’ agreement in September 2025, Chief Cabinet Secretary Minoru Kihara said at a regular briefing on Jan 26. His comments echo those of Mr Atsushi Mimura, the Finance Ministry’s top foreign exchange (FX) official, who said Japan is keeping close contact with the US. Both officials declined to comment on talk of rate checks.

“This is shaping up as a controlled, policy-engineered reset,” said Mr Masahiko Loo, a senior fixed-income strategist at State Street Investment Management.

While Ms Takaichi prefaced the remarks by saying it was not for her as prime minister to comment on “matters that should be determined by the market”, Finance Minister Satsuki Katayama has said Japan has a “free hand” to take action as needed, including intervention. Ms Katayama said on Jan 26 that she is watching currency moves with a high sense of urgency.

“We will take all necessary measures to address speculative and highly abnormal movements,” Ms Takaichi said on Jan 25, without specifically naming the yen or Japanese government bonds, which have been extremely volatile recently.

Reports from traders that the Federal Reserve Bank of New York had contacted financial institutions to check on the yen’s exchange rate, and recent close communication between Ms Katayama and US Treasury Secretary Scott Bessent, hint at the possibility of joint intervention. 

“Historically, MOF (Ministry of Finance) rate checks are a precursor to action,” State Street’s Mr Loo said. “Failure to follow through would embolden speculative pressure as markets actively test official resolve by pushing further against the yen.”

The yen has rallied almost 3 per cent over two trading days, the biggest gain since April 2025 when markets were in turmoil following US President Donald Trump’s tariff onslaught.

For some traders, concerted action from both Japan and the US holds echoes of the Plaza Accord, a 1985 agreement between several of the world’s largest economies that effectively devalued the US dollar. Discussion about a policy response to fixing economic imbalances driven by “persistent dollar overvaluation” came up over a year ago. 

The US has intervened in currency markets on only three separate occasions since 1996, according to the New York Fed’s website, most recently selling the yen alongside other Group of Seven nations to help stabilise trading after the 2011 earthquake in Japan.

“Japan can’t fix the yen without risking domestic stress or global spillovers so the idea of coordination, a Plaza Accord II type of outcome, suddenly isn’t crazy to some,” said Mr Anthony Doyle, chief investment strategist at Pinnacle Investment Management. “When the US Treasury starts making calls, it’s usually a sign this has moved past a normal FX story.”

The Japanese government spent almost US$100 billion (S$127 billion) on yen-buying to prop up the currency in 2024. On each of the four occasions, the yen’s exchange rate was around 160 per dollar, setting that level as a rough marker for where action might take place again. 

“Ultimately, if this is a genuine attempt to anchor USD/JPY, Tokyo must follow through with actual intervention,” said Mr Homin Lee, a senior macro strategist at Lombard Odier.

He added that both Japan and the US stepping into the market would be “an unusually overt display of bilateral coordination”. 

Mr Lee said that “160 is a simple, round number that cuts through noisy political headlines to many Japanese voters and market commentators who are certain to treat it as a sort of major crisis indicator ahead of the Lower House snap election in February”.

Japan is gearing up for a surprise election on Feb 8, with Ms Takaichi’s promise to cut taxes on food sending shock waves through the Japanese debt market in the past days.

The 40-year rate rocketed past 4 per cent to a fresh high since its debut and a first for any maturity of the nation’s sovereign debt in more than three decades.

“Intervention only delays but not reverses the yen depreciation trend in the current macro set-up where there is focus on increased fiscal spending,” said Mr Rong Ren Goh, a fixed-income portfolio manager at Eastspring Investments. BLOOMBERG