Will the Japanese Yen continue to decline? The three key points behind the joint intervention by the US and Japan

The Japanese yen exchange rate has recently caused a stir in the market. The USD/JPY pair has surged to around 154, hiding a quiet “currency defense battle.” So, the question is—will the yen continue to fall? Investors must understand that this is no longer a one-sided market decision but a complex game involving multiple central banks’ policies.

US and Japan Preparing to Act: From Signals to Actual Intervention

In financial markets, a single phone call from a central bank can convey a thousand words. Recently, the New York Federal Reserve’s call was interpreted by the market as a strong signal that the U.S. is prepared to assist Japan in stabilizing the exchange rate.

Specifically, on January 23, the New York Fed called major financial institutions to inquire about USD/JPY exchange rate quotes. This move triggered a chain reaction in the forex market—market participants realized the likelihood of joint intervention by the U.S. and Japan increased significantly. This is not without precedent. Looking back, the Plaza Accord of 1985 was a coordinated effort by multiple countries to reverse exchange rate trends. Since 1985, there have only been six instances of such multinational joint interventions, usually in response to major financial shocks or involving broad cooperation across multiple currencies.

Evercore ISI economist Krishna Guha noted, “In the current situation, U.S. involvement in forex intervention is reasonable. The shared goal is to prevent excessive yen weakness and also to indirectly stabilize the Japanese bond market.” He further emphasized, “Even if no actual intervention occurs, such signals could accelerate yen short covering.”

Yen Short Squeeze Reversal: Why Now Is the Time to Cut Losses

Why is the yen’s depreciation trend suddenly facing a turn? The fundamental reason lies in Japan’s domestic fiscal and monetary policy environment.

Japanese Prime Minister Fumio Kishida dissolved the House of Representatives on January 23 for an early election, with results to be announced on February 8. His promised tax cuts have raised concerns about Japan’s fiscal health, leading to record-high yields on Japanese government bonds. When investors doubt Japan’s debt repayment ability, many short investors start to realize the risk: the possibility of U.S.-Japan cooperation to stabilize the yen is increasing, and the profit potential from shorting the yen is shrinking.

This explains why market observers are generally seeing a rapid unwinding of yen shorts. Brent Donnelly, senior forex trader at Spectra Markets, pointed out that the most likely scenario is that Japan’s Ministry of Finance will take concrete action to stabilize the exchange rate. A less likely scenario is that the U.S., Japan, and South Korea might reach some agreement to jointly prevent the yen or won from excessive depreciation. Based on these expectations, he believes the downward trend of USD/JPY could continue.

How Do Major Institutions View It? Three Predictions for the Yen’s Future

Faced with the volatility of the yen, different financial institutions have offered their own assessments.

Kiyoshi Inoguchi, senior strategist at Lison Holdings, believes the previous yen depreciation trend will come to an end. He further pointed out, “The market’s focus will shift to USD/JPY trading within the 150 to 155 range.” This means that 150-155 will become the new key zone, with short-term fluctuations likely concentrated within this range.

However, not all institutions are optimistic about the yen’s stabilization. Goldman Sachs remains cautious, emphasizing that the key depends on subsequent central bank actions. “Unless the Bank of Japan adopts a more hawkish stance or implements quantitative tightening to stabilize the bond market, the yen and Japanese bonds will continue to face pressure.” In other words, signals of intervention alone are not enough; real policy changes are the decisive factor.

Central Bank Policies Are the Key: The Final Answer on Yen’s Direction

Returning to the initial question—will the yen continue to fall? The answer is not simple.

In the short term, signals of joint intervention are enough to prompt short sellers to reassess risks. The USD/JPY range of 150-155 will reflect the market’s actual expectations of the effectiveness of coordinated intervention. But in the medium to long term, everything depends on Japan’s central bank policies. If the BOJ adopts more hawkish measures or implements quantitative easing to stabilize bonds, the yen could truly reverse course. Otherwise, even if short-term signals have an impact, the long-term downward pressure on the yen may persist.

Investors need to closely monitor the BOJ’s next moves and whether the U.S. and Japan will escalate their cooperation into actual market operations. This will determine the true future trajectory of the yen.