Yen surrenders nearly half its gains from US-Japan intervention

The yen experienced a notable decline, shedding nearly half of its intervention-driven gains against the US dollar, fueling speculations among traders about potential future intervention by authorities. After reaching a high of 158.48 against the US dollar on Aug 7, the currency was trading at 158.48, well below the 155.23 it reached on Aug 3.

The yen had previously been near a 40-year low of 164 per greenback last week before a joint yen-buying operation by Japan and the United States since 1998. The currency also shed about 4 per cent of its gain against the Singapore dollar, following the joint intervention on July 30. The pullback highlights the limitations of intervention in reversing the yen’s long-term decline, as factors such as Japan’s high debt load and geopolitical uncertainty continue to weigh on the currency.

The US dollar surged on Aug 6, posting its biggest daily gain in two weeks, driven by rising oil prices, which dampened confidence in easing tensions in the Middle East. US and Japanese officials have vowed to defend the yen if necessary, with US Treasury Secretary Scott Bessent stating they are "doing whatever it takes." However, analysts believe that intervention would need to be accompanied by faster Bank of Japan rate hikes or a favorable backdrop for Federal Reserve easing.

The Bank of Japan maintained its benchmark rate unchanged last week, with overnight index swaps indicating a 60 per cent chance of a rate hike by September. Japan’s top currency official, Atsushi Mimura, stated that authorities would respond to foreign exchange moves in coordination with monetary policy. The intervention on July 31 reportedly involved around US$34 billion, followed by an estimated US$53 billion the previous day, potentially marking the largest single-day intervention on record if confirmed.

Experts suggest that while intervention can provide temporary respite, it is unlikely to be successful on its own.