The yen is heading into the end of the week having surrendered nearly half of its intervention-driven gains, fueling speculation among traders that authorities may step into the market again.
The currency traded around 158.34 versus the dollar during the London session, well off the strong point of 155.23 reached on Monday, well off the strong point of 155.23 reached on Monday. It had been near a four-decade nadir around 164 per dollar last week before the first joint yen-buying operation from Japan and the U.S. since 1998.
The pullback underscores the limits of intervention in reversing the yen’s longer-term decline, with a wide interest-rate gap to the U.S., Japan’s high debt load and geopolitical uncertainty continuing to weigh on the currency. Meanwhile, the dollar on Thursday posted its biggest daily gain in two weeks as oil prices climbed, reflecting fading optimism that tensions in the Middle East would ease.
U.S. and Japanese officials have warned investors they’re determined to keep defending the yen if needed.
“The possibility of another round of intervention is high especially as dollar-yen approaches 160,” said Moh Siong Sim, a strategist at the Oversea-Chinese Banking Corp. But “for intervention to be effective, it needs to be accompanied by faster BOJ rate hikes or a backdrop favoring Federal Reserve easing.”
While the Bank of Japan left its benchmark rate unchanged last week, overnight index swaps imply about a 60% chance of a rate hike by September. Japan’s top currency official, Atsushi Mimura, said authorities would respond to foreign-exchange moves in coordination with monetary policy.
Traders are also cautious ahead of Friday’s payroll figures as Fed Chairman Kevin Warsh leaves Wall Street guessing at his next move. Dollar-yen’s one-week implied volatility, which includes payrolls data as well as next week’s report on inflation, rose on Friday.
“A stronger than expected payrolls report that pushes the pair back above 160 will put Japanese authorities under renewed pressure to intervene,” said Carol Kong, a strategist at Commonwealth Bank of Australia. “If authorities refrain from acting after dollar-yen reclaims the 160 level, traders will be encouraged to rebuild short yen positions which is the very outcome policymakers want to avoid.”
Japan said it intervened in the currency market three times during the spring Golden Week holiday to prop up the yen, going beyond its recent twin-punch playbook with an additional round in an apparent effort to maximize the psychological impact on investors.
Intervention “could buy time to have a more credible policy mix or to craft a better message to investors,” said Idanna Appio, portfolio manager at First Eagle Investments. “But I don’t think on its own, it can be successful.”
Authorities likely used around $34 billion intervening in the currency market to support the yen on July 31, a Bloomberg analysis of central bank accounts indicates. The action came after authorities spent an estimated $53 billion the previous day, in what would likely be the largest single-day intervention on record if confirmed.
“Joint action remains possible,” said Charu Chanana, chief investment strategist at Saxo Markets. “U.S. Treasury Secretary Scott Bessent’s ‘whatever it takes’ language and the U.S. Treasury’s instruction for banks to remain ready for future action suggest last Friday was not necessarily a one-off.”
