The yen has extended its losses, nullifying approximately half of the gains that were prompted by the significant US-Japan joint intervention. The currency saw a decline of as much as 0.8%, reaching 159.06 per dollar on Monday, making it the weakest performer among Group-of-10 currencies. This development suggests that the impact of the intervention is fading, and the yen's underlying pressures are reasserting themselves.
The intervention, which occurred in early August, involved an estimated $85 billion spent over two days by Japan and the US, pushing the yen from above 163 to around 155 per dollar. However, one month later, strategists note that while the intervention briefly slowed the yen's short-term decline, it has done little to alter the fundamental forces driving its longer-term depreciation. This coordinated effort was the first joint action to buy yen since 1998, with US Treasury Secretary Scott Bessent indicating a willingness to participate in further joint interventions.
Analysts remain skeptical that intervention alone can achieve a sustained yen rebound without more decisive monetary tightening by the Bank of Japan. As long as Japanese borrowing costs remain significantly lower than those in the US, carry trades are likely to continue, drawing money away from the yen. Forecasters anticipate multiple interest rate hikes from the Bank of Japan over the coming year, which would increase borrowing costs for Japan's public sector. Japan's second-quarter GDP growth was also lower than expected at an annualized 1.1%, further adding to the uncertainty surrounding any rate increase.
