Why did the United States intervene in the yen issue at this time, from 'tacit approval' to 'personally going out'? Summary: The New York Federal Reserve rarely inquired about the Japanese yen exchange rate. Bank of America analysis suggests that the United States may intend to suppress the appreciation of the US dollar in order to enhance trade competitiveness, maintain stability in US debt, and increase diplomatic leverage with Japan. As the Japanese general election approaches, the joint efforts of the United States and Japan to stabilize the exchange rate may buy time for the Kaohsiung City government during the election window. Last Friday, the New York Federal Reserve inquired about the exchange rate of the US dollar against the Japanese yen, causing the exchange rate to drop by about 1.6%. The possibility of joint intervention by the United States and Japan in exchange rates is increasing in order to curb the strong US dollar or rapid depreciation of the Japanese yen. According to the Wind Chasing Trading Platform, the Alex Cohen team of Bank of America Securities stated in a research report released on January 25th that this move represents a key shift in the US foreign exchange policy stance. The US may intend to suppress the appreciation of the US dollar to enhance trade competitiveness, maintain US debt stability, and increase diplomatic leverage with Japan. As the Japanese general election approaches, the joint efforts of the United States and Japan to stabilize the exchange rate may buy time for the Takashi government during the election window. At the same time, in order to avoid shaking the Japanese stock market, this move aims to keep the exchange rate within a politically acceptable range, rather than immediately pushing the yen to a very high level. Key shift in US foreign exchange policy stance Bank of America Securities pointed out that last Friday's incident broke the market's inherent understanding of the US' non intervention 'stance. Previously, the market generally expected that the United States would only tacitly allow the Japanese Ministry of Finance to intervene when necessary, following comments from US Treasury Secretary Vicente on recent exchange rate trends. However, the direct intervention of the New York Fed trading desk changed this expectation. Over the past fifteen years, although the Japanese yen has experienced significant fluctuations, the United States has mainly participated through joint statements or tacit approval from the Group of Seven (G7), with few reports of direct action. The team of Bank of America analysts Alex Cohen emphasized in the report that if the "currency check" is true, it marks a more aggressive stance by the US Treasury Department under this administration than in previous decades. This is consistent with the direct intervention of the United States in support of the Argentine peso last autumn, indicating that the United States is more willing to incorporate foreign exchange policy into its broader diplomatic and economic policy toolbox. Why did the United States take action? Three potential motivations It is crucial to understand the motives behind the intervention of the US Treasury Department at this time. The Bank of America report lists three possible strategic objectives for the United States to take this action: 1. Prevent the appreciation of the US dollar. The United States may aim to enhance its trade competitiveness by suppressing the US dollar exchange rate. If this is the dominant motive, it means that the US dollar will face broader downside risks in the future. 2. Maintain stability in the US Treasury market. If Japan acts alone, it may need to sell US treasury bond bonds as reserve funds. By supporting the yen, the United States can stabilize the Japanese treasury bond bond (JGB) market, thereby reducing its spillover risk to the U.S. treasury bond bond market. 3. Increase diplomatic leverage with Japan. As a diplomatic tool, this move aims to support its important ally Japan, especially in the context of Japan's commitment to invest $550 billion in the United States and potentially increase defense spending. The United States cooperates with its exchange rate policy in exchange for Japan's cooperation on broader policy objectives. Japan's demand: market stability before the election For the Japanese government, the current core demand is the stability of the exchange rate and stock market. The Bank of America report suggests that the government may hope to maintain the USD/JPY exchange rate in the 145-155 range in the near future and fall back to the 135-145 range in the medium term, which is seen as more in line with fundamentals and interest rate differentials. However, as the February 8th election approaches, the Japanese government does not want the yen to appreciate excessively. The drastic fluctuations in exchange rates may trigger a significant pullback in the Japanese stock market, which is not conducive to elections. Meanwhile, an overly strong yen will also make the central bank cautious when re anchoring inflation expectations. Therefore, the joint "exchange rate check" between the United States and Japan may be more aimed at buying time for the Takashi Hayao government to control the exchange rate within a politically acceptable range during the election window, rather than intending to immediately push the yen to a very high level. Outlook for the future: Intervention risks and exchange rate trends Looking ahead to the future, Bank of America Securities expects that this move by the Federal Reserve and the US Treasury Department will suppress the US dollar to Japanese yen exchange rate below 160 in the short term, especially before the Japanese election on February 8th. If the currency pair retests its recent highs, the risk of joint intervention, including from the United States, will significantly increase. However, analysts also remind that although the Bank of Japan is expected to raise interest rates twice and the Federal Reserve to cut interest rates twice in 2026, which will help support the yen, the upward trend of the US dollar against the Japanese yen may resume later, against the backdrop of strong US economic performance and structural capital outflows from Japan. In this situation, as long as US inflation remains under control, the possibility of coordinated intervention in the future will continue to exist. For investors, this means that the simple unilateral short selling strategy of the Japanese yen is no longer safe, and they must always be vigilant against the dual policy resistance from Washington and Tokyo. https://(wallstreetcn.com)/articles/3764132