Japanese Yen holds firm after coordinated US-Japan intervention

• The Japanese Yen trims its early gains as the US Dollar finds some stability.
• Japan and the United States confirm coordinated Yen buying and signal readiness to act again.
• Japan's low interest rates continue to encourage carry trades, limiting the Yen's upside.

USD/JPY steadies on Monday after a sharp decline at the weekly open fuelled speculation that authorities may have stepped into the market again following last week’s coordinated intervention by Japan and the United States (US).

At the time of writing, the pair trades around 156.80, down 0.35% on the day, after hitting an intraday low of 155.23, its lowest level since May 6.

Japan’s Ministry of Finance confirmed that Tokyo and Washington jointly bought Yen on Friday to counter excessive volatility and disorderly currency moves. The move came after Japan had already intervened on its own on Thursday.

Reuters reported that Bank of Japan (BoJ) money market data suggest Japan may have spent about $58.97 billion on the first intervention, followed by another $36.58 billion during the joint operation with the US.

Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent have both warned that they will not hesitate to conduct further joint intervention if needed.

However, intervention has not changed the fundamentals weighing on the Yen. Japan’s loose financial conditions, expansionary fiscal policy and relatively low interest rates continue to favour carry trades.

Meanwhile, the US Dollar (USD) is also showing signs of stabilizing, limiting further gains in the Japanese Yen. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.83, rebounding from 99.42, its lowest level since June 15.

Dollar positioning eases as Fed credibility questioned, JPY shorts face shake-up after intervention

Analysts at Rabobank highlight that "USD net longs increased to their highest levels since September 2024 in anticipation of a potentially hawkish outcome to the July FOMC meeting." However, they note that "in the event the USD fell back as a result of the Fed meeting as Chair Warsh’s inflation fighting credibility was questioned by some." In Rabobank’s view, this reversal in price action "suggests scope for a softening in the level of net USD longs in the next CFTC data release."

Turning to Japan, Rabobank observes that "JPY net shorts had climbed to their highest levels since 2024 last week, ahead of the concerted intervention from the MoF and the US Treasury to stem the weakness in the JPY." The bank argues that this official action "suggests that positioning is likely to be sharply changed in the next data release," although it cautions that "it is too early to assess whether Japan’s fundamentals have strengthened sufficiently to allow the JPY to hold better levels vs. the USD in the spot market over the medium-term."