Yen Falls Past ¥160 per Dollar, Undermining Gains from July Intervention

In late July, the United States and Japan carried out their first coordinated yen-buying intervention since 1998. The move lifted the yen from a four-decade low near ¥164 per dollar to about ¥155.23, but the rally proved short-lived. By late August the currency slipped back toward ¥160, touching ¥160.20 and erasing more than half of the gains achieved after the July 31 action.

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The yen’s weakness is driven primarily by a wide interest-rate gap between Japan and the United States, which makes borrowing in yen cheap and investing in higher-yielding assets abroad attractive. Elevated oil prices linked to Middle-East conflict and concerns over Japan’s fiscal outlook add further pressure. Hedge funds have added to short-yen positions for a second consecutive week, according to Commodity Futures Trading Commission data for the period ending Aug. 25. Market pricing shows an roughly 84 % chance that the Bank of Japan (BOJ) will raise rates at its September meeting, with an 80 % probability of a hike overall.

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BOJ Deputy Governor Ryozo Himino signaled openness to a September rate increase in a recent speech. Finance Minister Satsuki Katayama indicated Japan could draw on a Federal Reserve facility that allows borrowing dollars against Treasuries for yen purchases, while Treasury Secretary Scott Bessent urged the Fed to expand that program to aid Tokyo. Prime Minister Sanae Takaichi’s administration is reported to support a near-term BOJ hike in response to the yen’s decline.

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• “With the yen touching the psychologically relevant level of 160 per US dollar, intervention expectations will inevitably increase,” — Alex Cohen, a foreign-exchange strategist at Bank of America

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• “The intervention tackled positioning. It did not tackle oil prices, Treasury yields or the US-Japan rate differential,” — Masahiko Loo, senior fixed-income strategist at State Street Investment Management

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• “Because markets have already largely priced in a September rate hike, a significant rally in the yen would require more than a single policy adjustment,” — Masayuki Nakajima, a senior strategist at Mizuho Bank

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• “The market is clearly not convinced that Japan’s fundamentals justify an exchange rate below current levels,” — Jane Foley, the head of FX strategy at Rabobank

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• “The joint intervention was effective in the sense that it brought dollar-yen lower, but there are doubts over how lasting its effect will be in curbing yen selling,” — Kumiko Ishikawa, a senior analyst at Sony Financial Group

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