Structural headwinds buffet the yen even after US-Japan joint intervention

The US and Japan jointly coordinated the biggest currency market intervention in 15 years. A month later, the intervention has mostly succeeded in keeping the yen below the 160 per dollar threshold. But as global markets signal discomfort with inflation, history suggests stabilization of the currency might be short-lived.

We charted the yen’s depreciation in recent years and noted major interventions by the Bank of Japan. Episodes in 2022 and 2024 resulted in the yen strengthening, but only for a month or two.

US-Japan cooperation has been deepening this year in several ways (including an increasing role for America as an oil supplier). Japan is the biggest holder of US government debt; helping Japan defend its currency avoids a glut of Treasuries that would drive up borrowing costs.

All eyes are on the Bank of Japan’s next interest-rate move; the nation’s 10-year bond yield recently touched 3% for the first time in three decades. Markets increasingly see a currency-supporting, inflation-suppressing rate hike as certain in either September or October.