On January 23, 2026, following the Bank of Japan’s monetary policy meeting, the yen—which had temporarily depreciated to the 159-yen range against the dollar—rapidly surged to the lower 157-yen range in about 10 minutes following reports that the BOJ had conducted a rate check. Behind this move is coordination between Japanese and U.S. authorities and strong warnings to the market aimed at curbing excessive yen depreciation beyond the 160-yen level.

Sudden Yen Volatility Following the BOJ Monetary Policy Meeting and Temporary Spike to the 157-Yen Range

On January 23, 2026, the yen showed dramatic volatility against the U.S. dollar in the Tokyo foreign exchange market. At the Bank of Japan’s Monetary Policy Meeting held on the morning of the same day, it was decided to keep the policy rate unchanged at 0.75%, which had been raised in December of the previous year, 2025. In the press conference held by Governor Kazuo Ueda starting at 3:30 p.m., there was no clear mention of the specific timing or pace of additional rate hikes. Consequently, views spread among market participants that the interest rate differential between Japan and the U.S. would not narrow rapidly, temporarily accelerating yen-selling and dollar-buying activity. As a result, the yen exchange rate, which was hovering around 158.60 yen per dollar just before the press conference began, dropped from the upper 158 yen range—which was below the previous day’s close of 158.41 yen—to a temporary low of 159.23 yen as of 4:30 p.m.

However, past 4:40 PM, the market atmosphere changed completely. As speculation and reports swept through the market that the Bank of Japan had conducted a rate check—inquiring about exchange rates with major private financial institutions—the yen suddenly soared by nearly 2 yen into the low 157 range in a brief span of just about 10 minutes. This sharp rise carried over into evening trading and the New York market, causing the yen to rapidly recover its value to the 155 yen range and, at one point, even to the mid-152 yen range against the dollar.
Please refer to the figure below.

Background Behind Rate Checks and the Cooperative Stance of Japanese and U.S. Authorities

Behind the recent rapid appreciation of the yen was a strong sense of crisis held by the Japanese government and the Bank of Japan regarding the previously rapid depreciation of the currency. The previous foreign exchange intervention was conducted when the exchange rate hit the 161 yen per dollar level in July 2024, and the 160 yen threshold had been recognized in the market as the authorities’ defense line. January 23, 2026, was also the day the House of Representatives was dissolved and the election campaign kicked off for the polling day on February 8, creating an environment where yen-selling pressure easily intensified due to concerns over fiscal deterioration stemming from the economic policies advocated by both the ruling and opposition parties.

Rate checks conducted under such circumstances are viewed as being based on prior consultations and a shared understanding between Japanese Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent. Especially in overseas markets, reports circulated that the U.S. Federal Reserve, acting on instructions from the U.S. Treasury, was involved in the rate checks. The fact that Japanese and U.S. financial authorities worked in tandem to present a precursor to concrete action—moving beyond mere verbal intervention—served as the decisive catalyst that triggered a simultaneous buyback of yen-selling positions by speculators.

The Mechanism of Rate Checks and the Process Leading to Market Intervention

The definition of a rate check, positioned between verbal intervention and actual intervention

There are broadly three stages of official intervention in the foreign exchange market: verbal intervention, rate checks, and actual intervention. Verbal intervention involves key figures such as the Minister of Finance and the Vice Minister of Finance for International Affairs keeping excessive market fluctuations in check through statements, without any actual buying and selling of funds, and its impact on the market remains relatively small to medium-scale. In contrast, actual intervention is an action where the Bank of Japan handles the operational duties based on the Ministry of Finance’s judgment, actually executing massive US dollar-selling and yen-buying in the market using funds such as the Foreign Exchange Fund Special Account, and it exerts an extremely massive impact on the market.

The rate check conducted this time is an action positioned midway between these. Specifically, it refers to a procedure in which the government and central bank inquire with major commercial banks about the current exchange rate and confirm what volume of transactions would be immediately possible at that level. Although no actual buying and selling has taken place at this stage, it serves as a signal that the authorities are ready to move to actual currency intervention at any time, and thus functions as a de facto final warning for the market.

Why does a mere rate check drive the yen up by as much as 7 yen?

There are primarily three reasons why a rate check exerts a powerful psychological impact on the market. First, it indicates that authorities have moved beyond mere verbal warnings of caution and have entered a concrete preparatory stage immediately preceding execution. Second, there is a historical track record in past cases where rate checks have progressed to actual foreign exchange intervention with a high probability. Third, the uncertainty of not knowing when or on what scale an intervention might occur instills extreme tension in speculative investors who have been building up leveraged yen-selling positions.

In the case of January 23, 2026, a rate check was conducted right after the exchange rate was driven down to the 159-yen level, triggering a rush of buybacks among investors holding short positions (yen-selling positions). The fact that the rate was temporarily pushed back by nearly 7 yen toward a stronger yen and weaker dollar with only the signal of preparatory steps—without any actual yen-buying intervention—demonstrates that the deterrent effect on the market was extremely high.
Please refer to the figure below.

Foreign Exchange Market Movements and Their Ripple Effects on the Japanese Economy

Short-term impact on the stock market and export companies, and changes in correlation

The rapid appreciation of the yen triggered by rate checks immediately cast a shadow over the Japanese stock market as well. On the Tokyo stock market at the start of the week on January 26, selling pressure expanded, primarily centered on export-related stocks such as automobiles and precision machinery, causing the Nikkei Stock Average to temporarily plunge by a significant 961 yen compared to the previous weekend. This was because concerns that the stronger yen would diminish the value of Japanese companies’ overseas sales when converted into yen chilled investor sentiment.

However, from a long-term and structural perspective, the correlation between exchange rate levels and stock prices is no longer as simple as it used to be. In the conventional Japanese market, the formula of “a weaker yen equals higher stock prices” and “a stronger yen equals lower stock prices” was dominant. However, in recent years, as global companies have increased their overseas production ratios, local procurement and settlement have become widespread. Rather than the simple impact of theoretical currency conversion, substantive earnings factors—such as global demand trends, product competitiveness, and cost structures—have been playing a growing role in determining stock prices, and the stock market’s resilience to currency fluctuations is also gradually shifting.

Trends in Rising Prices and the Impact on Real Wages and Consumer Livelihoods

Meanwhile, the pause in the yen’s depreciation resulting from this rate check will provide some welcome relief for domestic consumers and households by curbing rising import prices. Based on 2020, the consumer price index has continued to rise by more than 3% year-on-year, driven largely by daily necessities such as food and utilities. Even as corporate goods price increases have not been fully passed on to retail prices, the high import costs driven by the weak yen have directly increased the burden on households.

According to the Monthly Labour Survey published by the Ministry of Health, Labour and Welfare, even though nominal wages are on an upward trend, real wages—which account for price fluctuations—continue to hover in negative territory, having decreased by approximately 3% compared to 2020 levels. Correcting the excessive depreciation of the yen has become an essential factor in putting the brakes on the decline of real wages through the stabilization of imported energy and food prices, and in supporting the recovery of personal consumption.

Challenges and Background of Monetary and Fiscal Policies

The Bank of Japan’s Stance on Rate Hikes and Views on the Neutral Interest Rate

In March 2024, the Bank of Japan shifted toward monetary normalization by abolishing its negative interest rate policy and yield curve control, and raised the policy interest rate to 0.75% in December 2025. Furthermore, it has been implementing gradual rate hikes—such as raising the policy rate to 1.25% in September 2026—though a gap often arises between its pace and the rate-hike expectations of the market. Governor Ueda has explained that the estimated neutral interest rate is around 1% to 2.5%, and the current interest rate level remains near the lower end of that range.

Behind the Bank of Japan’s reluctance to rush the pace of interest rate hikes is a cautious stance: it wants to more firmly confirm a virtuous cycle between wages and prices in order to sustainably achieve the 2% price stability target. However, when compared to the hawkish stances and interest rate levels of major overseas central banks—most notably the U.S. Federal Reserve—if Japan’s pace of rate hikes is perceived as gradual, it poses the difficulty of easily reigniting yen-selling pressure driven by the interest rate differential between Japan and the United States.

Expansion of the Fiscal Deficit and Its Impact on the Government Bond Market

Underlying the exchange rate trends is also a deep-seated market distrust regarding Japan’s fiscal situation. According to data published by the Ministry of Finance, the fiscal deficit—representing the gap between Japan’s general account expenditures and tax revenues—remains substantial, and the government debt-to-GDP ratio exceeds 240% on a total debt basis, the highest level among G7 nations. On a net debt basis, while offset to a certain extent by assets such as foreign exchange reserves held by the government, concerns over a fiscal expansion path are generating upward pressure on long-term interest rates.

As the government continues to increase the issuance of government bonds while maintaining an expansionary fiscal policy, the emergence of policy contradictions—such as demanding that the Bank of Japan maintain its government bond purchases—increases the risk that market confidence will decline, leading to a simultaneous rise in interest rates and depreciation of the yen. Beyond temporary exchange rate control through market intervention, demonstrating fiscal sustainability and monetary policy consistency to the market has become a fundamental challenge for stabilizing the currency’s value.

Future Outlook and Key Points to Watch in the Foreign Exchange Market

Possibility of Transition to Direct Intervention and Intervention Line Scenarios

While the recent rate check has temporarily put the brakes on the excessive depreciation of the yen, market attention is now focused on whether it will shift to actual currency intervention. If a currency intervention is executed, dollar-denominated funds will be withdrawn from the Foreign Exchange Fund Special Account overseen by the Ministry of Finance, and transactions will be conducted through financial institutions. Because the fund settlement for the intervention takes place two business days later, the scale of the operation can be verified through changes in fiscal and other factors affecting the Bank of Japan current account balances published by the BOJ.

In the market, the 161-yen-per-dollar range from past intervention records and the recent high of the 159-yen range have come to be viewed as strong upper resistance levels. If a situation arises in the future where political developments or trends in overseas interest rates cause the exchange rate to approach or break into the 160-yen level once again, it is predicted that there is a very high probability that Japanese and U.S. authorities will resort to large-scale, live yen-buying intervention in the form of stealth or announced intervention.

Medium-to-Long-Term Outlook Based on Japan-US Interest Rate Differentials and the International Situation

The medium- to long-term trajectory of the yen depends, beyond the temporary stalling tactic of foreign exchange intervention, on the fundamentals of Japan and the U.S. as well as trends in the international situation. If signs of an economic slowdown and a cooling labor market in the U.S. progress, and expectations for interest rate cuts by the Federal Reserve strengthen, a natural correction toward a stronger yen and weaker dollar will be more likely to occur through the narrowing of the Japan-U.S. interest rate differential. In addition, crude oil prices and the degree of tension in the Middle East will also have a significant impact on Japan’s import prices and trade balance.

For Japanese authorities, the central focus will be whether, within the time bought by interventions, they can coherently advance the Bank of Japan’s normalization of monetary policy alongside the government’s highly predictable fiscal management. All eyes will remain on upcoming monetary policy meetings as well as political and economic events in Japan and the United States to see whether measures to curb excessive market fluctuations while controlling market expectations will prove successful.

Reference Page

• [Bank of Japan: “Regarding the Review of Monetary Policy”] https://www.boj.or.jp/mopo/mpmdeci/mpr_2024/k240319a.pdf
• [Bank of Japan “Corporate Goods Price Index”] https://www.boj.or.jp/statistics/pi/cgpi_release/
• [Ministry of Internal Affairs and Communications “Consumer Price Index”] https://www.stat.go.jp/data/cpi/sokuhou/tsuki/index-z.html
• [Ministry of Health, Labour and Welfare “Monthly Labour Survey”] https://www.mhlw.go.jp/toukei/list/30-1a.html
• Ministry of Finance “Budget”

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