The yen is weakening again, trading around 158.45 yen per dollar in the Tokyo foreign exchange market, after briefly strengthening to 155.23 yen following the coordinated US-Japan intervention. This reversal suggests that market intervention alone is insufficient to counteract the yen's long-term depreciation, driven by the significant interest rate gap between the United States and Japan, Japan's substantial national debt, and geopolitical uncertainties. The yen had previously reached a 40-year low of 163.99 yen per dollar in July before the intervention.
Japan has conducted several large-scale interventions to prop up the yen, including a record single-day intervention of 6.2787 trillion yen (approximately $42.2 billion) on April 30. Further interventions occurred on May 4 (780.2 billion yen) and May 6 (4.6759 trillion yen), totaling 11.7349 trillion yen (approximately $79 billion) over three days. These interventions, particularly the coordinated effort with the US, initially lifted the yen as high as 155 yen per dollar from just above 163 yen. However, about half of these gains have now been given up.
Analysts are questioning the sustained impact of intervention without fundamental policy changes. Christopher Wong, a strategist at OCBC, noted that while further intervention is likely if the yen approaches 160, its effectiveness would require rapid rate hikes from the Bank of Japan or expectations of monetary easing from the US Federal Reserve. Robert Sockin of PGIM expressed skepticism, suggesting that intervention might only temporarily squeeze out short yen positions and could even backfire if speculators aggressively sell yen and Treasurys. Scott Bessent, US Treasury Secretary, also acknowledged that intervention provides market signals but policy ultimately determines currency direction.
The coordinated US-Japan intervention, the first joint operation to buy yen since 1998, also aims to address Washington's concerns about prolonged yen weakness fueling inflation in Japan and potentially destabilizing global markets. This action has shifted market dynamics, with strategists like Billy Leung from Global X ETFs noting that investors now must price in "policy reaction functions" and geopolitical developments, leading to more cautious approaches to short-yen positions and a potential rotation to alternative funding currencies. While the immediate goal for central banks was to break the 155 yen level, this was only briefly achieved.
