Beware of black swan attacks! The Japanese Yen approaches the 160 intervention line, and the Japanese and US finance ministers issue a rare synchronized warning

Japanese Finance Minister片山臯月 and U.S. Treasury Secretary Janet Yellen expressed共同 concerns about the weakening of the Japanese yen. USD/JPY hit 158.50, a one-year high, approaching the 160 intervention line, with Japan having intervened four times in 2024 at this level.片山 emphasized that “unilateral” fluctuations could trigger action. This warning comes after the U.S. Department of Justice’s investigation into the Federal Reserve, with markets worried that policy could be increasingly politicized, adding uncertainty.

Lessons from the historical 160 intervention line and the current countdown

When the yen hovered around 160 in 2024, Japanese authorities intervened four times in the foreign exchange market, roughly establishing a reference point for potential future actions.片山 stressed that “unilateral” yen fluctuations point to market disorderly, violent swings that could trigger further action, as described by officials. Last December,片山 warned that if necessary, Japan could take action in the currency market “completely at will.” At that time, the yen broke through 157.

On Tuesday during Asian trading, USD/JPY reached 158.50, the strongest level in a year, just one step away from 160. This level’s sensitivity is rooted in the history of interventions in 2024. Japan’s Ministry of Finance and the Bank of Japan jointly intervened multiple times near 160, with single interventions reaching hundreds of billions of dollars. While these interventions were effective in the short term, they could not reverse the long-term depreciation trend of the yen, indicating that pure market intervention struggles against fundamental forces.

The rare synchronized statements from片山 and U.S. Treasury Secretary Janet Yellen provided international backing for yen interventions. Historically, Japan’s unilateral interventions in forex markets often drew criticism from the U.S. Treasury, accused of “currency manipulation.” However, this time, Yellen explicitly expressed “the same concerns,” implying that if Japan intervenes again, the U.S. would not oppose and might even support it. This rare international coordination significantly enhances the effectiveness of intervention.

The triple black swan risks of yen depreciation

Arbitrage unwind: Yen depreciation raises financing costs, potentially triggering unwinding of trillions of dollars in global arbitrage positions.

Japanese government bond crisis: Yen depreciation boosts import inflation, forcing the Bank of Japan to raise interest rates, causing bond yields to soar.

Asian currency domino effect: Yen depreciation triggers competitive devaluations of Asian currencies like the Korean won and Taiwan dollar, leading to capital outflows.

However, market skepticism remains about the effectiveness of yen intervention. Although four interventions in 2024 temporarily pushed USD/JPY from 160 down to 155, the pair quickly rebounded. This “whack-a-mole” style intervention drained Japan’s foreign reserves but failed to change the fundamental downward trend of the yen. The core issue lies in the interest rate differential between Japan and the U.S.: with the Fed maintaining high rates and Japan’s central bank keeping negative or near-zero rates, capital naturally flows into dollar assets.

The Fed’s investigation by the Department of Justice sparks a crisis of policy independence

This meeting coincided with new legal actions by the U.S. Department of Justice against the Fed, reigniting concerns that U.S. monetary policy could be subject to political interference. Fed Chair Jerome Powell stated on Sunday that the Fed had received a grand jury subpoena, which could lead to criminal charges related to his testimony on the headquarters renovation last June.

While this event seems unrelated to yen depreciation, it profoundly impacts global financial market risk pricing. The Fed’s independence is the cornerstone of dollar credibility; if monetary policy becomes politicized, the dollar’s status as a global reserve currency could be undermined. When the Trump administration exerted pressure on Powell through the DOJ, markets began to doubt whether the Fed could stick to its 2% inflation target or would succumb to political pressure and cut rates prematurely.

This uncertainty directly influences the yen’s movement. If markets expect the Fed to cut rates early under political pressure, the dollar should weaken and the yen strengthen. But in reality, the yen continues to depreciate, indicating that market confidence in the U.S. economy and dollar remains stronger than that in Japan. A deeper logic is that even if the Fed’s independence is compromised, the U.S. economy’s fundamentals and the dollar’s international status remain far superior to Japan’s.

The systemic risk of unwinding arbitrage positions is the core threat of a yen black swan. When yen interest rates are extremely low, investors borrow yen to invest in high-yield assets (such as U.S. stocks, emerging market bonds, cryptocurrencies). This strategy is known as “yen arbitrage.” The global scale of yen arbitrage positions is estimated to reach trillions of dollars. If the yen suddenly appreciates sharply, these positions could suffer huge losses, forcing unwinding.

The “Black Monday” of August 2024 is a warning. At that time, the Bank of Japan unexpectedly raised interest rates, causing the yen to surge from 162 to 142 in a short period, a 12% appreciation. This triggered panic unwinding of global arbitrage positions, with U.S. stocks plunging over 3% in a day and Bitcoin dropping over 15%. If Japanese authorities intervene again near 160 with greater force, similar systemic risks could reoccur.

The transmission pathway of U.S.-Japan joint warnings to the crypto market

The impact of the yen black swan on the crypto market is clear. First is the direct unwinding effect: many crypto investors use yen leverage to buy Bitcoin and Ethereum, and yen appreciation will trigger forced liquidations. Second is the decline in risk appetite: as the yen acts as a safe-haven currency, its appreciation usually coincides with sell-offs in global risk assets, with cryptocurrencies hit hardest. Third is liquidity contraction: yen arbitrage trading is a major source of global liquidity; a wave of unwinding will drain market liquidity.

片山臯月 attended a global financial regulators’ meeting on rare earth issues, where he met Yellen at the edge of the venue. 片山 pointed out that strengthening supply chains is a crucial task. According to a statement from the U.S. Department of the Treasury, Yellen discussed plans to build more resilient, secure, and diversified supply chains. This broad discussion on the yen indicates that currency issues have been elevated to a strategic level.

An official from Japan’s Ministry of Finance attending the meeting said that Japan and the U.S. will continue to maintain close communication at the deputy minister level regarding exchange rate movements. This institutionalized communication mechanism means that yen issues are no longer solely Japan’s concern but a joint policy coordination matter. For crypto investors, this provides a clear risk monitoring indicator: when USD/JPY approaches 160, the probability of Japanese intervention rises sharply. At such times, leverage should be reduced, stablecoins increased, and holdings of altcoins avoided.