Now that the dust has settled somewhat on a hectic Friday in the G10 FX space, it seems an opportune moment to ‘pick the bones’ out of what happened with the JPY, and where things may now head next.

Put simply, as shown on the above graphic, the big takeaway here is that this does look somewhat different from the prior intervention/jawboning rounds that we have seen, with the US Treasury – via the NY Fed – also having got involved. In a decade or so of doing this, I can’t remember a time when the NY Fed have ‘checked rates’ in spot JPY, but am happy to be corrected on that front.

That said, what is unclear right now is whether Bessent & Co have conducted this check by virtue of some sort of currency agreement with Japan’s MoF, or whether they were simply asked to do so essentially as a favour, for logistical purposes. It’s worth noting that the NY Fed has traded on the MoF’s behalf previously, largely due to timezones, with prior ‘yenterventions’ having taken place towards the back end of the NY session.

If we are looking at the former situation, then this is a whole different ball game, and we could well be entering a pretty interesting time in the FX space. If it is indeed the case that the US have started to forge agreements over currency valuations with trading partners, namely those in Asia, then we could start to see Treasury starting to engineer a stabilisation, or strengthening, in those currencies, acting in conjunction with domestic authorities as required.

I must admit that this is something I’ve always been rather sceptical of, as ideas such as the ‘Mar a Lago’ accord grab headlines, but rarely actually come to fruition. Still, we should nonetheless be on watch for something like this to be taking place, and be cognisant of the risk of said accords.

On the other hand, my base case for now, and in the absence of any further information to disprove it, is that we are more than likely seeing the ‘common or garden’ intervention of the ilk that we’ve all experienced before, most recently in 2022 and 2024. If this is the case, then the playbook is a relatively simple one – the ‘rate checks’ stabilise things for the foreseeable, meaning the MoF never have to actually intervene; or, the ‘rate checks’ act as a trigger for market participants to test the MoF’s mettle, sparking another round of JPY selling exacerbated by a position squeeze, which in turn means that Mimura and Katayama are forced to pull the trigger sooner rather than later.

I lean towards the latter scenario, based on prior form, considering not only that ‘rate checks’ are typically the last warning before such action takes place, but also that the Takaichi Admin appear to have a much, much lower tolerance for speculative FX moves than their predecessors.

With all that in mind, both scenarios look bullish JPY to my mind, not least taking into account that the risk/reward has now tilted massively out of the favour of short JPY positions, as nobody will be wanting to run the risk of being caught 5/6 big figures offside if/when the MoF, or their agents, do indeed pull the trigger. This should also be bearish for the buck, more so if we are looking at some sort of currency accords being in  place, though a degree of selectivity is needed here, as GBP > 1.36 & EUR > 1.18 both look overdone considering what remains a relatively weak fundamental backdrop. If the USD is to continue its grind lower, then Asian FX could well be the relative outperformer.