The United States: Behind the Scenes of “Rate Check” Implementation

■ It is speculated that the "currency inquiry" in January was implemented under the judgment of the US side, to curb long-term US interest rates.  

■ It also implied preventing subsequent US government actions that might exacerbate volatility in the US Treasury market. 
 
The minutes of the Federal Open Market Committee (FOMC) meeting (January 28-29) released on February 19 showed that the New York Fed, at the request of the US Treasury, implemented a "currency inquiry" in January, which was considered a pre-intervention measure for foreign exchange. In addition, some media reports on the 24th stated that, according to several US government officials, this move was led by the US and not based on a request from Japan. Given that US Treasury Secretary Bessent expressed concern about the sharp rise in Japanese government bond yields and the potential impact of the rapid depreciation of the yen on global financial markets during an interview at the World Economic Forum (Davos) on January 20, if the relevant reports are true, then this "currency inquiry" was a measure implemented by the US side as a pre-emptive response to the rise in global government bond yields and systemic risks (financial systemic risks). 
 
Some believe that this move was intended to curb volatility in the Japanese market during the political vacuum before the House of Representatives election. From the perspective of the US's motives, the strengthening upward trend in global government bond yields since January is also an important background factor. Considering President Trump's desire to lower mortgage rates to advance "affordability policies" before the November US midterm elections, and US Treasury Secretary Bessent Financial consistent emphasis on the stability of long-term government bond yields, it can be inferred that the US move was an attempt to mitigate the sharp rise in Japanese government bond yields, which could trigger significant volatility in the US Treasury market. Although the US market initially experienced a "triple whammy" (a decline in the dollar, stocks, and bonds) after the implementation of the "currency inquiry," the subsequent rise in global long-term government bond yields and the steepening trend of the yield curve were gradually suppressed. In retrospect, the overall trend was largely in line with US expectations. In hindsight, following the "currency inquiry," the US government took a series of actions that could have exacerbated volatility in the US Treasury market. These included nominating a candidate for the next Federal Reserve Chairman on January 30th, introducing new tariffs after the Supreme Court's unconstitutional ruling on "reciprocal tariffs" on February 20th, and launching an attack on Iran on the 28th. The previous preventative measures can be seen as hedging against the impact of these actions. 

 
In the House of Representatives election on February 8th, the Liberal Democratic Party secured an absolute and stable majority, allowing the government to operate stably. The market had initially expected the Takaichi administration to return to a realistic fiscal policy, but the Takashi administration's reluctance to raise interest rates ahead of schedule during its meeting with Bank of Japan Governor Ueda on the 16th, and the announcement of the Bank of Japan's board of directors candidate list on the 25th, all raised concerns in the financial markets that it might favor a high-pressure economic policy. The US Treasury market is gradually stabilizing. Unless it plunges into further turmoil due to factors such as a prolonged attack on Iran, the likelihood of the US understanding Japan's policy intervention to curb the yen's depreciation is low.