The United States and Japan conduct foreign exchange market rate inspections... Yen plummets

The United States implemented a currency exchange rate check on the Japanese foreign exchange market, causing the yen to plummet sharply. According to The Nikkei, this move was led by U.S. Treasury Secretary Scott Bessent, due to concerns that instability in Japan’s financial markets could trigger rising interest rates in the U.S. and Europe.

On the 23rd of last month, the yen-to-dollar exchange rate in the Tokyo foreign exchange market briefly rose to around 159 yen per dollar, but rumors of U.S. foreign exchange authorities conducting a currency check spread, and the rate quickly fell to around 155 yen. A currency check is a preliminary step before foreign exchange market intervention, where major banks are asked to report on foreign exchange transactions; the market views this as a warning signal.

A person close to Secretary Bessent told Nikkei that the currency check at that time was a preliminary step toward market intervention. If Japan had made a request, coordinated actions such as buying yen and selling dollars might have been initiated. However, it is reported that the Japanese Ministry of Finance did not make such a request to the U.S. at that time.

This measure, along with abnormal rises in Japanese government bond yields, also affected the U.S. Treasury market. It is interpreted as an effort to prevent financial market panic caused by rising long-term bond yields. Following the currency check, the upward trend in bond yields temporarily paused, and the market stabilized to some extent.

This proactive move by the U.S. foreign exchange authorities demonstrates their intention to preemptively block economic instability. The future of U.S.-Japan foreign exchange policy cooperation, as well as whether the U.S. will conduct additional currency checks, could influence market risk management.