Nearly a hundred billion dollar intervention can't stop the yen from roaring towards 160? The yen's exchange rate has retreated nearly half of its rebound, and the effects of the US-Japan joint intervention are gradually fading.

The yen exchange rate continued to weaken slightly in Tuesday's trading session, approaching a very critical level against the dollar (indicating a depreciation trajectory for the yen), which may spark speculation in the market regarding potential intervention by the Japanese Ministry of Finance to support the yen. Despite a joint intervention by the U.S. and Japanese governments, the yen rate was once again nearing 160, with the core logic undoubtedly being that while forex intervention can alter short-term capital flows, it cannot change the fragile fiscal outlook, the relative yield gap, and the monetary policy reaction function that determine the exchange rate center. On Tuesday, due to a holiday closure of the Tokyo market, market volatility was relatively mild, but forex traders were preparing for the yen to depreciate towards 160 yen per dollar. The critical level of 160 had previously curtailed further weakening of the yen. During the London trading session, the yen fell by 0.1% at one point, reaching 159.39 yen per dollar. On Monday, with the dollar strengthening against most G10 currencies, the yen fell by 1%, marking its worst single-day performance since mid-February. Currently, the yen has retraced nearly half of the gains since July 31; on that day, Japan and the U.S. executed their first coordinated intervention since 1998 to heavily support the yen. Masayuki Nakajima, a senior strategist at Mizuho Bank, wrote in a report: "If the dollar to yen exchange rate clearly breaks through the psychologically significant level of 160, concerns about intervention in the market may further intensify." As illustrated in the chart above, the yen's decline has ignited discussions in the market about further government intervention the yen has already retraced nearly half of the gains from the coordinated buy action in July aimed at supporting the yen. The U.S. government's commitment to support the yen "at all costs," led by Treasury Secretary Janet Yellen, essentially conceals very limited intervention firepower. This coordinated intervention helped the yen exchange rate rebound from about 164 yen per dollar in late July, a near forty-year low, and at one point earlier this month, it rose to as high as 155 yen per dollar. Analysis conducted based on the Bank of Japan's accounts indicated that relevant government authorities, coordinated by the U.S. Treasury, may have intervened in the forex market with approximately $34 billion on July 31 to support the yen. The day before, under U.S. coordination, Japanese authorities may have already invested $53 billion; if officially confirmed, this could become the largest single-day forex market intervention ever recorded in human history. However, as market participants refocus on fundamental drivers, the yen has gradually weakened again. Even though officials in Tokyo and Washington have warned that they are prepared for another joint action if necessary, the significant interest rate differential between the U.S. and Japan, concerns about Japan's fiscal and monetary policy outlook, and geopolitical uncertainties continue to exert pressure on the yen. For the Japanese government, the more challenging aspect is that it is not solely facing a monetary policy issue, but rather a "rate-fiscal-exchange rate" triangle constraint, which introduces a reflexivity where the more frequent interventions occur, the more crucial the credibility of the policy becomes for the yen. Japan needs to raise interest rates to genuinely compress the U.S.-Japan interest rate differential, but higher interest rates in Japan will also elevate the financing costs of an extremely high government debt system and the term premium on Japanese government bonds; if the government thus remains cautious about the Bank of Japan's rapid tightening, the market will doubt how much it can actually raise the policy interest rate. Meanwhile, if Japan relies on its foreign exchange reserves to continue buying yen, it may also involve a reallocation of global bond assets and produce spillover effects on the already pressured long-term U.S. yieldsthis is also one of the significant backgrounds for the U.S. rare involvement in coordination. Nearly $100 billion in intervention cannot stop the yen from reaching 160! The true "bear engine" for the yen is not speculation, but the U.S.-Japan interest rate differential. The rare buy of yen jointly by Japan and the U.S. around July 31 once pushed the dollar/yen rate down from about 163.99 to around 155.20, but as of August 11, it has already returned above 159, retracing about half of the gains. The real issue is that the Bank of Japan maintained the policy interest rate at 1.0% on an 8:1 vote during its July meeting, with only Takeda Akira advocating a direct increase to 1.25%; in contrast, U.S. policy interest rates and the yields on 10-year or longer U.S. Treasury bonds remain significantly higher, with the short-end interest rate differential between the U.S. and Japan still sufficiently maintaining the yield advantage of dollar assets and the economic foundation for yen carry trades. Bank of Japan Governor Kazuo Ueda's hawkish signals suggesting a "potential acceleration of interest rate hikes" have indeed led the market to view a rate hike in September as an increasingly realistic scenario, but the anticipated tightening does not equal a realized narrowing of the interest rate differentialso long as the pace of Japan's actual rate increase lags behind the consensus expectation of financial market traders, the foundational yield structure for shorting the yen has not fundamentally disappeared. The U.S. non-farm payroll data actually proved: what can sustain the appreciation of the yen is not "how much the government buys yen," but whether the U.S.-Japan interest rate differential exhibits lasting compression. The unexpected decrease of 23,000 jobs in July, far below the market expectation of an increase of 80,000, led to a sharp drop in short-end U.S. yields, and the dollar/yen rate fell by 1.1% to 156.68 on that day, which is a classic case of fundamental repricing: the market lowers Fed tightening expectations U.S. yields decline dollar yield advantage shrinks yen rises. However, subsequent geopolitical risks in the Middle East greatly pushed up oil prices and significantly elevated inflation risks and U.S. Treasury yields, allowing the dollar to quickly regain its yield advantage, and the yen promptly fell back towards 160. The U.S.-Japan joint intervention seems more like an effort to increase the cost of shorting and compress leverage to create "two-way risks" during a time of disordered unilateral fluctuations in the exchange rate, rather than a permanent alteration of the equilibrium price of the dollar against the yen. Therefore, although the short positions shrank significantly after the joint intervention, if the Bank of Japan cannot intensify its monetary tightening to keep pace with market expectations for actual rates, those positions may well be reestablished.