WASHINGTON — U.S. Treasury Secretary Scott Bessent stated Wednesday the United States is “absolutely not” intervening in currency markets to strengthen the Japanese yen, sending the currency tumbling 1.6 percent to around 153.55 per dollar, according to statements made during a CNBC interview. The declaration reversed three days of yen gains and reaffirmed Washington’s long-standing “strong-dollar policy,” Bessent said.
Fed Rate Check Triggered Rally
The yen had surged nearly 4 percent from lows near 159.23 per dollar after the Federal Reserve Bank of New York conducted unusual “rate checks” with major currency dealers on January 23. Acting as fiscal agent for the Treasury Department, the New York Fed contacted banks to inquire about dollar-yen exchange rates—a maneuver traders interpreted as potential preparation for coordinated U.S.-Japan intervention.
“A lot of confusion as to what was going on, but it eventually became clear that the Fed did a rate check and this was public information that banks were allowed to share,” Brent Donnelly, president of Spectra Markets, told clients. The dollar dropped from approximately 157.50 yen at midday Friday to a four-week low of 155.66 in afternoon trading.
Rate checks involve officials asking dealers what price they would receive if entering the market, serving as a tool for monetary authorities to signal willingness to act. The mere hint of possible intervention proved remarkably effective in forcing rapid unwinding of short-yen positions built up over weeks.
Tokyo-Washington Coordination Under Scrutiny
Japanese Finance Minister Satsuki Katayama stated earlier this month she and Bessent shared concerns over what she called the yen’s “one-sided depreciation” during bilateral meetings. The coordination follows a September 2025 joint U.S.-Japan statement that reaffirmed both countries’ commitment to market-determined exchange rates while agreeing foreign-exchange intervention should be reserved for combating excessive volatility.
Japanese officials said the accord marked the first written U.S. confirmation of the right to intervene during excessive volatility. Prime Minister Sanae Takaichi warned Sunday her government would “take all necessary measures” against speculative and abnormal currency movements ahead of a snap election scheduled for February 8.
“We will continue to closely coordinate with the U.S. authorities as needed, based on a joint Japan-U.S. statement issued in September last year, and will respond appropriately,” Atsushi Mimura, Japan’s top currency diplomat, told reporters Monday.
Limited U.S. Support
Bessent’s Wednesday remarks suggest Washington’s support for Tokyo’s currency concerns remains limited to verbal warnings rather than material intervention. Domestic political and economic considerations in the United States constrain the administration’s willingness to engage beyond symbolic gestures, according to analysts.
“Instances of coordinated intervention have historically been very rare, typically arising during financial crises or significant natural disasters,” noted Junya Tanase, chief currency strategist for Japan at JPMorgan Chase. The gap between joint rate checks and actual coordinated intervention is substantial, he said.
Bessent had expressed concerns at the World Economic Forum in Davos on January 20 about spillover effects from rising Japanese bond yields into U.S. Treasury markets, stating it was “very challenging to separate the market reaction from what is happening endogenously in Japan”. The Treasury’s rate check followed those remarks by three days.
Market Pressure Mounts Before Election
The yen’s ongoing depreciation has become a symbol of market anxieties regarding Japan’s fiscal condition despite soaring Japanese government bond yields reaching unprecedented levels. Japan’s public debt currently stands at approximately 230 percent of GDP, the highest among developed nations.
Market observers anticipate dollar-yen levels exceeding 160 per dollar could prompt intervention, mirroring Japan’s last foreign exchange market action in July 2024 when authorities spent 5.53 trillion yen ($36.8 billion) after the currency reached the 160 threshold. However, the Ministry of Finance’s influence on markets remains limited due to lack of investor confidence in Japan’s fiscal management, analysts say.
“It’s a sovereign credit concern,” said Toshinobu Chiba, fund manager at Simplex Asset Management in Tokyo. He forecasts the yen could potentially weaken to 180 per dollar—levels not seen since 1986—if Takaichi achieves a substantial electoral victory and expands stimulus initiatives.
Takaichi, alongside primary political rivals, has committed to suspending the consumption tax on food, which generates 5 trillion yen ($33.6 billion) annually, without detailing how she plans to offset the revenue loss. The election serves as a referendum on her strategy to rejuvenate the economy through expanded fiscal stimulus.
Intervention History Offers Caution
Japan holds foreign reserves of approximately $1.23 trillion, providing substantial resources for potential market action. However, historical patterns indicate effects of intervention may be limited, particularly when not supported by broader policy shifts.
During July 2024 interventions, additional factors beyond Tokyo’s dollar selling contributed to the yen’s rise, including then-presidential candidate Donald Trump expressing desire for a weaker dollar and Japanese politicians calling for Bank of Japan interest rate increases. “I’m not suggesting that intervention didn’t influence the market. It certainly did. However, if Trump and the others hadn’t made their comments, we likely would have returned to around 160,” said Toshihiko Omori, chief desk strategist at Mizuho Securities.
The Bank of Japan has signaled willingness to collaborate closely with the government to manage sharp yield increases, which could include emergency bond-buying measures, Governor Kazuo Ueda stated. The central bank left policy rates unchanged at its January 23 meeting while revising up its inflation outlook.
Washington also has incentives to support efforts counteracting market upheaval affecting not only the yen but also Japanese government bonds, causing ripples into U.S. Treasury markets. However, Bessent’s explicit rejection of intervention Wednesday suggests those concerns have not reached the threshold requiring coordinated action.
The yen traded at approximately 152.74 per dollar as of Wednesday, reflecting a 0.29 percent daily change following Bessent’s comments. Markets remain vigilant for possible intervention as Takaichi navigates a difficult election campaign shadowed by currency and bond market turbulence.
