- The yen hit a four-decade low above 163 per dollar before the US and Japan confirmed joint yen currency intervention.
- Following the intervention, the yen strengthened about 5% before paring gains to 157 per dollar.
- Analysts expressed little hope for a sustained yen rebound, citing the currency's fundamentals as weak.
- Unlike prior 2022 and 2024 interventions, when the Bank of Japan sold dollars, reports suggest the U.S. Treasury may have sold euros to buy yen this time.
- UBS strategists stated that Japan's policy mix is unlikely to generate sustained yen strength, with the yen supported more by intervention risk than by domestic monetary fundamentals.
- HSBC emphasized that a structural shift in Bank of Japan policies is key to sustained yen strength, advocating for faster BoJ rate hikes and a clearer government stance on the yen.
- Robin Brooks of the Brookings Institution warned that the coordinated intervention could weaken rather than strengthen confidence in the yen, especially if Washington sold euros instead of dollars.
- ING's Chris Turner linked the dollar's resilience to the unresolved question of a September Federal Reserve rate hike, with higher-rate expectations boosting demand for Treasurys.
The U.S. and Japan's recent joint intervention to support the yen has sparked a temporary 5% rebound, but analysts express skepticism about its long-term effectiveness.
The yen strengthened from 163 to 157 against the dollar, its lowest level in four decades. However, analysts warn that the currency's fundamentals remain "weak," with UBS strategists stating, "Japan's policy mix remains unlikely to generate sustained yen strength."3478
Previous interventions in 2022 and 2024 involved the Bank of Japan selling dollars to buy yen, but this time, reports suggest the U.S. Treasury may have sold euros instead. Robin Brooks from the Brookings Institution noted that this could undermine confidence in the yen, stating, "This kind of twist in my opinion undercuts the efficacy of U.S. participation."56111213
Analysts from HSBC emphasized that a structural shift in the Bank of Japan's policies is crucial for any sustained rally, warning that without faster rate hikes and a clearer stance on the yen, confidence in its recovery remains low. "Unless we see much faster BoJ rate hikes... we still lack confidence in projecting a downtrend for USD-JPY," they wrote.910
The ongoing uncertainty surrounding U.S. interest rates further complicates the situation, as the dollar's resilience is tied to potential hikes by the Federal Reserve, which could impact international demand for Treasurys.
“The yen strengthened about 5% before paring gains to 157 per dollar, after touching a four-decade low above 163. UBS strategists wrote that Japan's policy mix remains 'unlikely to generate sustained yen strength,' while HSBC said faster BOJ rate hikes and less fiscal expansion are needed for a structural shift.”
CNBC
