The alleged checking of FX rates by both the US and Japan last Friday has raised speculation that the pair could be on the verge of intervening. If that happens soon, it would clearly break the first rule of intervention, which is to surprise the market. But if we assume it goes ahead, why would the US join in? After all, when the BoJ intervened a couple of times in 2024, the US never participated, so why now?

An obvious answer is that the Japanese Ministry of Finance never asked the US to help in 2024, or it may have asked but was refused. Fast forward to today, and this time the US might have been asked, and it might have agreed. But there is also a second, more ominous, answer, which is that the US realises that it is in its best interests to intervene, not just Japan's.

If it does so, it will not be because of the yen, per se, but instead because the Japanese bond market has become a danger to the treasury market. The US can't intervene in the JGB market, but if FX intervention strengthens the yen and stabilises JGBs into the bargain, the US might consider it a job well done.

An important point to bear in mind here is that the risks to the US treasury market from JGBs do not just stem from the fact that dramatically higher Japanese yields could cause domestic investors to ditch treasuries and head home to the JGB market and/or make the JGB market more attractive to US-based investors.

The added problem is that JGB weakness largely represents the same debasement fears that seem to be coming the US's way. In other words, the US could be next if Japan trips over into some sort of debasement nightmare that not only craters the yen but also destroys the bond market as well. The US administration has a vested interest in preventing this from happening, and hence we'd argue that the US should be much more willing to intervene now than back in 2024 because Japanese bond yields are dramatically higher.

When intervention was going on in July 2024, the 30-year JGB yield was hovering around 2%, but now it has soared to 3.6%, having reached almost 3.9% earlier this month. These debasement fears arise out of high government debt and hefty central bank ownership of bonds, plus fears over politicisation of the central bank.

In the US, the last of these reflects the pressure put on Fed policy via commentary from the Administration, the nomination of a new Fed Chair by President Trump, and pressure to sack Governor Cook for cause. None of these sorts of things are happening in Japan. But this does not mean that BoJ independence concerns are absent.

On the contrary, the BoJ is aligned more explicitly with government policy than we see in the US. That was shown most clearly when former PM Abe took power in 2012 and quickly installed a new BoJ Governor, Kuroda to see through his wishes of stimulating the economy. With current Japanese PM Takaichi widely seen as cut from the same cloth as Abe, it seems understandable that the bond and currency market has the jitters. Those same jitters are present in the US.

Indeed, President Trump had to diffuse these pressures by suspending tariffs last April for three months to let the bond market calm down. Coming back to today, more measures are seemingly being taken by the US Administration to ensure that the bond market does not start to look like Japan's. One such measure that Steven Barrow, Head of Standard Bank G10 Strategy thinks is coming is a decision to eschew National Economic Council Director Kevin Hasset, in favour of another candidate for Fed chair who is less controversial.

“If this is correct, it will show once again that the US Administration is rightly sensitive to things that could crater the treasury market, even if it still wants to push an agenda, such as seeing change at the Fed. In a similar way, if it intervenes in the FX market, we think it will show that it is most concerned about the JGB market and treasuries; not the yen and the US dollar”, said Steven Barrow.