The recent rate check by the New York Federal Reserve late last week pushed the USD/JPY pair sharply lower, increasing the likelihood of coordinated foreign-exchange intervention, according to analysts at Bank of America Securities.
At 08:00 ET (13:00 GMT), USD/JPY was trading around 1% lower at 154.20. This move extended Friday’s 1.7% decline and lifted the yen to its strongest level since late November.
Bank of America Securities noted that while markets had been monitoring the risk of intervention from Japan for some time, the visible involvement of the New York Federal Reserve FX desk, acting on behalf of the U.S. Treasury, represented a new and potentially important signal. In a research note dated January 25, the bank described this development as a meaningful escalation in official attention to currency markets.
According to BofA, the probability of coordinated intervention has risen notably if the yen continues to weaken. This shift is also seen as evidence of a more proactive stance by the U.S. Treasury in managing currency dynamics.
The bank outlined several possible objectives behind the Treasury’s presumed rate checks. These include limiting further dollar strength to support U.S. trade competitiveness, supporting the U.S. Treasury market through coordinated action rather than unilateral moves, and using intervention as a diplomatic tool. In this context, support for Japan—an important U.S. ally—could be linked to broader policy cooperation, including Japan’s commitment to invest $550 billion in the U.S. and potentially increase defense spending.
BofA believes the current situation likely reflects a combination of these motives. However, it stressed that the dominant objective matters greatly for markets. If weakening the dollar becomes a primary goal, the chances of actual intervention would rise significantly, with broader bearish implications for the U.S. currency. For now, the bank views this as a contributing factor rather than the main driver.
In the near term, the possibility of further rate checks is expected to keep USD/JPY below the 160 level, particularly through the February 8 election period, according to the bank.
Looking further ahead, BofA expects the broader uptrend in USD/JPY to resume later in the year. This could potentially trigger unilateral intervention by Japan’s Ministry of Finance of Japan in the spring.
The bank also noted that even with two expected rate hikes from the Bank of Japan and two anticipated Federal Reserve rate cuts in 2026, USD/JPY could still face upward pressure. Strong U.S. economic performance and ongoing structural capital outflows from Japan may limit the effectiveness of unilateral intervention.
Under such conditions, BofA said, the likelihood of coordinated intervention would increase further, assuming U.S. inflation remains under control.
