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The yen weakened again despite a joint US-Japan market intervention last week to support its value.
Market participants continue to assess the yen's fundamentals, shifting their attention away from administrative market support measures toward domestic policy changes in Japan.
A week has passed since the US and Japan coordinated to rescue the persistently pressured yen exchange market, but the brief rally following the sharp yen spike has faded, and the exchange rate is declining again.
The yen initially strengthened significantly when the US Treasury Department and the Bank of Japan intervened together, lifting the dollar-yen rate from above 163 before the intervention to a peak of 155. However, the exchange rate has since fluctuated, with the yen giving back nearly half of its gains. On July 31, a week after the intervention was announced, the dollar-yen was trading around 158.50.
The market remains skeptical about the yen's fundamentals, and traders' focus is beginning to shift. Investors are now more hopeful for policy changes in Japan rather than relying solely on direct government intervention to support the market.
Robert Sockin, Chief US Economist at PGIM, released a research note on Wednesday stating that he is not optimistic about the effectiveness of this intervention.
"There is no doubt that intervention will force yen short sellers to cover their positions in the short term," Sockin wrote. "But I doubt that relying solely on forex intervention can reverse the long-term weakening trend of the yen. It could even lead to serious backlash."
Sockin added that if the intervention strategy fails, speculative capital might concentrate on selling the yen and simultaneously shorting US Treasuries, potentially forcing the Bank of Japan and the Federal Reserve to raise interest rates in order to stabilize markets.
This joint US-Japan market intervention is exceptionally rare, as the US actively stepped in to support another major sovereign currency. This move signals Washington's concern that the yen's persistent depreciation is, on one hand, driving up domestic inflation in Japan and, on the other hand, impacting other Asian currencies and disrupting global financial market stability.
US Treasury Secretary Scott Bessent stated last week that stabilizing the yen is not only in America's interests but also crucial for stability across the entire Asian region (accompanying video).
A recent report from Bank of America noted that the two central banks' short-term goal is to defend the 155 level. However, the exchange rate only briefly touched that level before turning downward again.
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US Treasury Secretary Scott Bessent acknowledged in an interview last week that relying solely on forex intervention cannot dictate the long-term direction of the yen exchange rate. "Intervention can send a signal to the market, but what truly reverses the exchange rate trend is monetary policy," he said. He also noted that the US was willing to participate in the joint intervention due to optimistic market expectations for future policy reforms in Japan.
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Editor: Guo Mingyu
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