Japanese Yen holds onto weekly losses amid absence of US-Japan intervention follow-up

The Japanese Yen (JPY) has been struggling this week, trailing its major currency counterparts, primarily due to the absence of subsequent joint intervention from the United States (US) and Japan. This observation is reflected in the table below, which presents the percentage change of the Japanese Yen against a selection of major currencies this week. The table highlights that the Yen underperformed against the US Dollar, indicating its weakest performance among the listed currencies.

The heat map, which displays percentage changes of major currencies against each other, further underscores the Yen's underperformance. In the heat map, the base currency is chosen from the left column, while the quote currency is selected from the top row. For instance, if the Japanese Yen is picked from the left column and moved along the horizontal line to the US Dollar, the percentage change displayed in the box represents the JPY/USD ratio.

Last week, both the US and Japan engaged in a joint intervention in foreign exchange (FX) markets to stabilize the Japanese Yen. The Ministry of Finance (MoF) of Japan confirmed that the intervention aimed to counter excessive volatility and disorderly movements in the Yen. Commerzbank's Thu Lan Nguyen emphasized that the sustainability of the Yen's recent rebound hinges on market confidence that coordinated actions by policymakers will remain a viable option.

She argued that for the Yen to maintain its gains, market participants must be convinced that coordinated interventions by the Bank of Japan (BoJ) and US authorities will continue in the future.

According to this viewpoint, US Treasury Secretary Scott Bessent has indicated a willingness to consider further interventions if necessary, thereby reinforcing the perception of an ongoing US-Japan intervention mechanism. Despite this, questions persist regarding the sustainability of such efforts. Japanese Finance Minister Satsuki Katayama reiterated Japan's commitment to implementing further forex intervention alongside the US, should the need arise.

Meanwhile, the Euro (EUR) experienced relative calm this week, following the release of better-than-expected German Industrial Production data for June. The Destatis reported that overall industrial activity grew by 0.2% month-on-month (MoM), outpacing the 0.1% estimate but falling short of the previous revised reading of 0.7%. On an annualized basis, the data showed a decline of 0.1% from the May reading, which remained flat.

The Japanese Yen, like many other currencies, is influenced by various factors, including the performance of the Japanese economy, the Bank of Japan's policy stance, the differential between Japanese and US bond yields, and overall market sentiment among traders.

The Bank of Japan (BoJ) plays a significant role in determining the Yen's value, as it is one of the world's most actively traded currencies. The BoJ's policy decisions, particularly those related to currency control, have a profound impact on the Yen's performance. Historically, the BoJ has intervened in currency markets occasionally, generally to lower the value of the Yen. However, the BoJ has been cautious about intervening frequently due to political concerns from its primary trading partners.

Between 2013 and 2024, the BoJ's ultra-loose monetary policy contributed to the Yen's depreciation against its major currency peers, primarily due to a widening policy divergence between the Bank of Japan and other central banks, particularly the US Federal Reserve. As the BoJ gradually withdrew from ultra-loose monetary policy in 2024, coupled with interest rate cuts in other major central banks, the policy differential between the US and Japan narrowed. This convergence has partially supported the Yen's recovery.

The Japanese Yen is often perceived as a safe-haven investment, meaning that during periods of market stress, investors tend to favor the Yen due to its perceived reliability and stability. Consequently, turbulent times are likely to bolster the Yen's value against other currencies considered riskier. As such, the Yen's performance is closely monitored by investors and policymakers alike, given its role as a safe-haven asset and its susceptibility to global economic and geopolitical developments.