Global markets are on high alert after the Japanese yen experienced its largest movement in six months.
This movement raises speculation that Japan, possibly with support from the USA, may intervene to stabilize the currency.
Yen intervention warning
Japan's Prime Minister, Sanae Takaichi, warned against 'abnormal' movements in the yen, which led to the dollar-yen pair falling from nearly 160 to 155.6 per dollar.
This was the strongest level in 2026 and the largest one-day rise since August.
Traders point out that short positions in the yen are at the highest level in ten years, increasing the risk of market turmoil if the currency weakens further.
“With short positions in the yen at a decade high and elections pending, it seems authorities are ready to intervene again, especially if the currency weakens further,” wrote market commentator Walter Bloomberg.
In addition to the volatility, the New York Federal Reserve (Fed) has reportedly contacted major banks about the yen. This is often seen as a precursor to coordinated intervention in the currency market.
Historical precedents show that joint action from the U.S. and Japan can be highly effective. Previous interventions, including the Plaza Accord in 1985 and the response to the Asian financial crisis in 1998, stabilized the yen, weakened the dollar, and boosted global assets.
Analysts are now warning that a coordinated intervention could yield results similar to what we saw in 2008, which could lead to increased liquidity globally.
“The Fed intervenes to save the yen,” noted CFA Michael Gayed, pointing out that a Japan-only intervention could force the Bank of Japan to sell U.S. Treasuries to obtain dollars, which could potentially create turmoil in global debt markets.
Instead, a coordinated intervention with the U.S. could prevent this type of consequence while consciously devaluing the dollar to support the Japanese yen.
Global markets are preparing for impact: Dollar weaker, yen stronger, and crypto volatility
Market strategists highlight the broader consequences of such action. Selling dollars to buy yen will weaken the dollar, increase global liquidity, and raise prices of assets such as stocks, commodities, and cryptocurrencies.
Bitcoin, for example, has one of its strongest positive correlations with the yen and an inverse relationship with the dollar.
A weaker dollar could facilitate significant repricing in the crypto markets, although there will likely be short-term volatility as leveraged yen carry trades unwind.
In August 2024, a modest rate hike from the Bank of Japan strengthened the yen and contributed to a six-day-long crypto sell-off of $15 billion, during which Bitcoin fell from $64000 to $49000.
Risk factors for government securities and investment opportunities: Navigating yen strength and dollar weakness
The U.S. government debt exposure is another significant concern. Analysts warn that turmoil in the Japanese government bond market could spread to U.S. Treasuries, potentially affecting global interest rates and safe-haven flows.
The macroeconomic picture is also important, as a weaker dollar could make U.S. debt easier to manage and exports more competitive. At the same time, markets may experience turmoil as traders adjust to sudden yen strength.
Thus, the situation is both risky and historically bullish for investors. If the Fed and Japan act together, it could trigger a broad market rally. This could provide a lasting boost for stocks, commodities, and digital assets.
However, short-term adjustments and liquidation pressure can create temporary pain, particularly for leveraged positions in yen-funded trades.
This explains why traders and authorities are closely monitoring the yen, as the outcome could determine far more than developments for the dollar and yen. It could also lay the groundwork for one of the year's most significant macroeconomic scenarios.