The US and Japan's joint intervention only lasted one day? The hawkish statements from Ueda and Kuroda failed to soothe the market, and the momentum for the yen's rebound faded, returning to the 160 level.

Notably, the yen fell into stagnation on Friday after a rebound driven by intervention, oscillating between gains and losses following the Bank of Japan's decision to maintain interest rates and Governor Kazuo Ueda's failure to provide new support for the yen. The yen had reversed its downward trend against the dollar, briefly strengthening to 158.55 after weakening to 160.88. All 52 economists polled anticipated the Bank of Japan's interest rate decision. The voting result was 8 in favor and 1 against, with committee member Hajime Takata calling for continuous rate hikes. At the post-meeting briefing, Ueda adopted a slightly hawkish tone, opening the door for future rate hikes at upcoming meetings, although he did not suggest that this was likely to happen soon. He emphasized his belief that the price outlook faces greater upward risks and that, with inflation trends now very close to the central bank's 2% target, any upward price surprises would carry a higher cost. Morgan Stanley's strategist Ikue Saito stated, "A continued and significant rise in the yen requires a higher degree of hawkish positioning," and added, "We expect the dollar/yen to continue its gradual recovery, recouping last night's losses." During Thursdays New York trading session, the yen rose against the dollar by as much as 3.3%, marking its largest intraday gain since December 2023, before pulling back. An informed market participant indicated that Japan intervened to support the yen, and U.S. authorities conducted a rate check around 2:30 AM Tokyo time. Rinto Maruyama, a senior forex and interest rate strategist at SMBC Nikko Securities, remarked, "By intervening before the Bank of Japan's monetary policy meeting, the authorities may aim to maximize impact and catch the market off guard, contrasting sharply with the more transparent and easily identifiable intervention in April." Maruyama added that the significant rise in long-term bond yields in both Japan and the U.S. is a key factor behind "Japan's forex intervention and the U.S. rate inquiry operations." Informed sources mentioned earlier this month that officials are willing to raise rates faster than economists' consensus due to the ongoing weakness of the yen, which heightens inflationary risks. Overnight index swaps indicate an approximately 88% probability of a rate hike by October. Strategist Andre de Silva noted that despite the hawkish tone, Bank of Japan Governor Ueda's press conference provided little evidence that the bank is prepared to accelerate its policy normalization timeline. This leaves the yen lacking the necessary policy catalyst to transform the sharply intervention-driven rebound into a broader trend reversal. Finance Minister Suetsugu Kat stated that she could not answer questions regarding whether forex intervention had occurred. She reiterated that authorities are ready to respond with urgency at any time. A U.S. Treasury representative did not respond to requests for comment. The U.S. involvement adds weight to the intervention and may make traders more cautious. U.S. Treasury Secretary Janet Yellen stated in an interview that she believes the yen is "severely undervalued" and that "excessive volatility" is unhealthy. Japans top currency official, Atsushi Mimura, said on Friday that Japan is receiving support from the U.S. that goes beyond moral support. Earlier reports from Japanese media indicated that Japan had intervened in the market and that U.S. authorities had conducted inquiries about the dollar-yen exchange rate. After touching 157.98 on Thursday, the yen weakened to 160.75 during early trading in Tokyo. Over the past 12 months, the yen has still fallen by about 6% against the dollar, underperforming among G10 currencies. Japan has repeatedly intervened in the foreign exchange market. The yen, which has recently dropped to a 40-year low, has been under relentless pressure from rising oil prices, ongoing budget deficits, and significant interest rate differentials. Although Japanese authorities spent a record 11.73 trillion yen ($73.1 billion) last quarter to buy yen in the open market, the currency continues to plummet. According to the Ministry of Finances reserve data, Japan may have utilized its holdings of foreign securities (including U.S. Treasuries) to fund the intervention. Japan's unprecedented intervention expenditures not only highlight how critical the situation is for the country but also illustrate the difficulty of swimming against the tide in a global forex market with a daily trading volume of $9.5 trillion. After not intervening for 25 years, Japan re-entered the markets in 2022 to support the yen, and then acted again in 2024 when authorities attempted to slow the yen's depreciation against the dollar. As central banks around the world significantly raised interest rates in response to post-COVID inflation, the Bank of Japan maintained its policy rate in negative territory to stimulate economic growth, which led to the yen's downward trend. Although the Federal Reserve kept interest rates steady this week, traders still expect U.S. borrowing costs to rise later this yearleaving the interest rate differential between the U.S. and Japan unfavorably wide for the yen.