The Japanese Yen gives back half of a record intervention

The USD/JPY currency pair experienced a record intervention on July 30 and July 31, 2021, where the Japanese Yen was purchased with a staggering 8.45 trillion Yen in one session, and an additional 5.3 trillion Yen the following day. This intervention was the largest on record, but already half of the intervention's impact has been reversed.

The intervention aimed to support the Yen, which had fallen to a low of around 155.00, just over nine Yen away from the 160.00 level. The pair has since regained more than four Yen of the nine-Yen move, with the 160.00 handle now within reach. The next crucial factor will be the American inflation data, which is expected to be released on Wednesday, August 12.

If the data shows a stronger-than-expected inflation rate, it could reignite hopes for a September interest rate increase by the Federal Reserve, potentially putting pressure on the Yen again. The Bank of Japan left its policy rate unchanged during the intervention, and market consensus suggests a near-even chance of a rate increase in the near future.

However, the decision to intervene in such a large scale has drawn attention to the potential need for further action. The domestic situation in Japan is not improving, with household spending falling in June and a complex political landscape influencing decisions about the Yen. The Bank of Japan's actions have been more vocal this time, confirming the intervention publicly and committing to repeat it if necessary.

This marks a shift from the previous approach of silent intervention. The next steps will depend on the upcoming economic data releases, particularly the American CPI and PPI figures, which are expected to be released on August 12 and 13, respectively. The market will be watching closely to see if the 160.00 handle is retested and whether the Bank of Japan will defend it before the American Federal Reserve's decision on September 16.