The currency has shed nearly half its gains, turning eyes to Tokyo's next policy move
A week after the United States and Japan bought yen together for the first time since 1998, the currency has given up almost half of its initial gains, sliding back toward the levels that pushed the two governments to act.
As per CNBC, the coordinated operation, which the two governments announced on July 31, lifted the yen as high as 155 to the dollar from just above 163 beforehand.
By August 7 the currency had drifted to around 158.50 to the dollar.
It had touched a 40-year low of 163.99 on July 23, according to Bloomberg.
Japan alone spent an estimated US$53bn on July 30, a likely single-day record, then an estimated US$34bn the next day.
The finance ministry drew on foreign reserves that stood at US$1.09tn at the end of June.
Scott Bessent, the US treasury secretary, said Washington acted because a sharply weaker yen risked destabilising markets across Asia.
A stable yen is "very important for the entire region," he told CNBC.
Intervention sends "market signals," he cautioned, but "it's policy that turns it."
Attention has since shifted to whether Tokyo will follow the intervention with policy.
Finance Minister Satsuki Katayama has urged Japan's large pension funds, including the Government Pension Investment Fund, to raise their holdings of domestic assets, and floated adding government bonds to a tax-free investment program for individuals, according to Bloomberg.
Prime Minister Sanae Takaichi has likewise pressed households and the GPIF to invest more in Japanese assets, per the same report; some strategists read the remarks as a sign Tokyo is exploring fresh ways to influence the currency.
Japan is the largest foreign holder of US Treasuries, and Bloomberg noted that any selling to fund yen purchases risks pushing down US bond prices.
To avoid that, Tokyo said it plans to tap a US Federal Reserve facility that lets it borrow dollars against its Treasury holdings, as reported by the Financial Times.
Several analysts doubt the intervention can reverse the trend on its own.
Robert Sockin, chief US economist at PGIM, wrote that he was "not convinced" the strategy would work and warned it "may backfire spectacularly," in a note cited by CNBC.
Kenneth Rogoff, a Harvard professor and former IMF chief economist, told the Financial Times the move was "just a bandage to buy the BoJ a bit more time."
Masahiko Loo, senior fixed-income strategist at State Street, struck a similar note.
He told the Financial Times that interventions only buy time and the real work falls on the Bank of Japan and Japan's fiscal policy.
The Bank of Japan raised its benchmark rate to a 31-year high of 1 percent in June, though Reuters reported that the move failed to lift the currency lastingly.
Markets now view the central bank's September 17-18 meeting as live.
"I feel like a September rate hike is a done deal," said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, in comments to Reuters.
According to Reuters, the episode has revived currency policy as a market risk for investors.
Billy Leung, investment strategist at Global X ETFs, said traders running large short-yen positions may turn more cautious and rotate toward other funding currencies such as the euro.
The yen has long served as the world's preferred funding currency for carry trades, where investors borrow cheaply in yen to buy higher-yielding assets abroad.
Behind the slide sits a wide gap between Japan's low interest rates and higher rates elsewhere, along with a debt load exceeding 200 percent of gross domestic product and persistent budget deficits that have weighed on confidence in Japanese assets, Bloomberg reported.
