Will the US Intervene in the Yen Exchange Rate? What Would It Mean if the US and Japan Recreate the “Plaza Accord”?

TradingKey - Japanese Prime Minister Sanae Takaichi issued a warning on Monday regarding recent sharp market volatility, stating that speculative movements would be monitored and action taken if necessary. This news boosted the yen. In early Asian trading on Monday, the yen extended its largest single-day gain in six months seen last Friday, and the USD/JPY pair (USD/JPY) has fallen below the 154 level.

However, it remains unclear whether Japanese authorities have entered the market to buy yen, as the Bank of Japan's current account data released Monday showed little divergence from money brokers' forecasts on Friday.

Analysts suggest that if the U.S. and Japan join forces to prevent further yen depreciation, it would mirror the 1985 "Plaza Accord"—a collaborative effort by five nations to sell the dollar and force its devaluation—potentially easing pressure on both U.S. and Japanese bonds.

New York Fed "Rate Check" Signals Intervention

Last Friday, the yen was sold off as the Bank of Japan meeting proved neutral, failing to provide enough hawkish signals to support the exchange rate. Subsequently, the Federal Reserve stepped in and conducted a "rate check" by asking banks for USD/JPY quotes. According to The Wall Street Journal, this is a clear signal that U.S. and Japanese authorities are preparing to intervene to halt the yen's decline.

Such action is not only rare but represents national intent. Analysis indicates that this rate check by the New York Fed required the sign-off of U.S. Treasury Secretary Bessent, or even Trump, suggesting it has escalated to the level of a coordinated multinational operation.

Historically, the U.S. last intervened in the currency market following the 2011 Japanese earthquake, when it joined G7 nations in selling the yen to prevent excessive appreciation. In other words, the U.S. does not intervene lightly unless there is a significant shock.

The current "crisis" stems from the yen's plunge over the past two weeks and the rise in Japanese government bond (JGB) yields. Previously, Prime Minister Sanae Takaichi's proposal for food consumption tax cuts triggered market concerns over Japan's fiscal health, leading to frantic selling of the yen and JGBs.

Regarding exchange rates, on January 14, USD/JPY closed as high as 159.34, nearing the psychological 160 level. This figure has long been seen as a red line; when it nears or breaks 160, Japanese authorities typically signal intervention or act directly—as they did four times around this level in 2024.

In the bond market, on January 20, the 40-year JGB yield broke 4% for the first time since 1995, while the yield on newly issued 30-year JGBs rose to 3.875%, both reaching historic highs.

Why would the U.S. intervene in the yen's exchange rate?

Following Japan's push for a bilateral U.S.-Japan statement last year, both countries can now utilize currency intervention to address excessive exchange rate volatility.

From a U.S. perspective, the primary consideration is maintaining the stability of the Treasury market.

While the U.S. could boost trade competitiveness by suppressing the dollar and preventing its appreciation, the dollar index has already fallen 9.5% in 2025—the largest annual decline in nearly a decade. Consequently, further dollar depreciation resulting from yen intervention is a potential repercussion the U.S. might have to bear.

The primary objective of such a move is presumably to maintain U.S. Treasury market stability. On one hand, if Japanese authorities were to intervene independently to stabilize the yen, Japan—as the largest foreign holder of Treasuries—would likely sell U.S. government bonds to raise reserve funds.

Additionally, because yen interest rates have been extremely low for a long time, investors can engage in carry trades by borrowing low-cost yen to invest in high-yielding overseas assets, particularly dollar-denominated ones. When yen rates spike, these carry trades become unprofitable, and dollar investors may even be forced to liquidate positions and buy yen.

Regardless of the transmission channel, Treasury prices would plummet, driving yields sharply higher. U.S. Treasury Secretary Bessent has recently been highly alert to the yen's depreciation and rising interest rates. On January 20, after JGB yields spiked and Treasury yields followed suit, Bessent remarked that it is "difficult to consider the spillover effects from Japan in isolation." This outcome contradicts the U.S. government's goal of suppressing Treasury yields and lowering borrowing costs.

For Japan, the core demand is the stability of the yen and Japanese stocks. With the February 8 election approaching, the Japanese government does not want excessive yen appreciation, which could trigger a sharp correction in Japanese equities—an unfavorable outcome for the election—and affect the central bank's anchoring of inflation expectations and policy-making. From this perspective, a joint U.S.-Japan effort to stabilize the exchange rate is effectively creating an opportunity for the Takaichi administration's election bid.

Will the U.S. act immediately?

From the U.S. perspective, intervening in the exchange rate is simply about choosing the lesser of two evils rather than gaining an advantage.

Shota Ryu, a foreign exchange strategist at Mitsubishi UFJ Securities, pointed out that realistically, the U.S. may be reluctant to buy the yen, a currency that has depreciated for five consecutive years. Consequently, while the U.S. might cooperate in small-scale interventions, such actions are unlikely to reverse the yen's long-term downward trend. Takuya Kanda, an analyst at the Gaitame.com Research Institute, noted that the U.S. is concerned about global de-dollarization trends and is therefore unlikely to directly sell dollars for currency intervention.

From an operational standpoint, currency intervention cannot proceed just with a nod from the U.S. By convention, Japan would also need to obtain consent from other G7 members before launching such measures.

Furthermore, Japan faces a dilemma between protecting its government bonds and the yen. Hiroyuki Machida, head of Japan FX and commodities sales at ANZ Bank, explained that if the Bank of Japan signals an increase in bond-buying during an emergency, it would push down long-term interest rates, which would in turn further weaken the yen.