Japan Risks Rising

January 26, 2026

Over the weekend, there was an interesting article in Bloomberg.  The New York Federal Reserve made calls on Friday to currency trading desks for a “rate check”.  A rate check is an informal call to let traders know that a big buy order is on its way.  The implication is that the Fed is going to step into the currency market to help support the falling Yen. 

Dear reader, this is rare!  The last time this happened in a big way was a year that started with a “1”. 

Why would the Fed do this?  Well, as we’ve talked about, the interest rates on Japan’s bonds are rising, due to increasing fears about Japan’s fiscal situation.  Those fears are spreading to Japan more broadly.  And that is reducing the demand for Yen in general.  The Fed cares because Japan is the largest foreign holder of US Treasuries.  So, the Fed is essentially stabilizing the market for US treasuries by helping to stabilize the Japanese currency. 

The Fed knows that these situations can spiral out of hand quickly.  The last time the Fed intervened in Japan’s currency was in the Asian Financial Crisis in 1998.  I’m sure most of you don’t remember.   But that was my first year on Wall Street, and it made it memorable!

The FX market just makes everything more complicated and volatile.  Imagine you wanted to bet on football games.  But let’s say your payouts are in a different currency.  And suddenly, things are happening to make that currency move sharply in unpredictable ways.  Well, that’s going to affect the bets you make on the football games.  So the betting spreads will be affected – even there’s been no effect on the football teams themselves.  Same thing with the markets – even tho stocks and US treasuries are not directly impacted by the Yen, the people who are buying and selling them are.

The moves over the weekend have calmed down a bit today.  The Japan stock ETF (EWJ) is actually up slightly today. And the yield on the 10yr JPN bond is ticking lower after its spike from a few days ago. The broader US equity market is not reacting.  But put "Japan" slightly higher up on your risk monitor.  We’ll keep an eye out.