‘Dollar Smile’ Creator Says Yen Intervention Marks the Peak: Is 125 Next?
Eurizon SLJ Capital says the dollar has peaked against the yen after the joint US-Japan yen intervention. The firm sees the yen reaching 125 per dollar, a gain of more than 20% from today.
The market is not listening yet. The yen fell 1% on Monday to 159.27 per dollar, the weakest of the Group-of-10 (G10) major currencies.
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Why Eurizon Believes Dollar-Yen Has Peaked
Stephen Jen, Eurizon SLJ Capital’s chief executive, made the call in a Tuesday note with portfolio manager Joana Freire. Jen created the ‘dollar smile’, the theory that the dollar rises in US booms and global crises but sags in between.
The name comes from the U-shaped curve this traces. His logic here is simple. Both governments have spent real money on the defense, and neither can afford to lose.
“Dollar-yen has most likely peaked, as neither the US nor Japan would give up or concede to the market. … Resistance is futile,” Bloomberg reported, citing Eurizon.
Washington and Tokyo spent roughly $87 billion buying yen on July 30 and 31. It was their first joint yen purchase since 1998. Only the 2011 Fukushima response was bigger.
Speculators noticed. Hedge funds cut their yen short bets in the week through August 4, Commodity Futures Trading Commission (CFTC) data show.
Yen Intervention Gains Are Already Half Gone
The problem is what happened next. Dollar-yen dropped from nearly 164 to 155.2 on the intervention. It now trades near 159.3. In under two weeks, the yen has given back half its intervention gains.
US INTERVENTION HAS FAILED THIS TIMEUSD/JPY is now back to the same level where the US intervened to strengthen the yen.Also, USD/JPY rallied almost 0.9% yesterday, its biggest daily gain in 5 months.At this pace, we might see USD/JPY above 164 in a few weeks again. pic.twitter.com/XfeNC4jrIl
— The Macro Paper (@macropaperr) August 11, 2026
The reason has not changed. US interest rates still sit far above Japan’s, so Japanese money keeps flowing abroad. Goldman Sachs data show Japanese investors bought foreign bonds at a strong pace through July.
Japan’s finances make the defense harder. Government debt hit a record 1,346.7 trillion yen at the end of June, about $69,000 per resident. Bond yields sit at 31-year highs, and the four largest insurers hold about 14.5 trillion yen in unrealized bond losses.
EVERY PERSON IN JAPAN NOW OWES ¥10.95 MILLION IN GOVERNMENT DEBTThat is roughly $69,000 per person, including children.Japan's central government debt hit a record ¥1,346.7 trillion at the end of June, up ¥2.84 trillion in three months.Spending keeps exceeding tax revenue,… https://t.co/cEhb3NrXcr pic.twitter.com/ST1AabfIY0
— Bull Theory (@BullTheoryio) August 11, 2026
Treasury Secretary Scott Bessent says the US remains willing to support Japan. Markets price roughly 63% odds of a Bank of Japan (BOJ) rate hike in September. At least three of nine board members pushed for faster increases in July, the bank’s summary showed Monday.
Skeptics See a Trap, Not a Turning Point
Robin Brooks is not convinced. The Brookings Institution senior fellow and former Goldman Sachs currency strategist spoke in a Channel 4 News interview on Tuesday. He argued no yen recovery can last while BOJ bond buying holds long-term yields artificially low.
Michael Gayed, publisher of the Lead-Lag Report newsletter, expects something more sudden.
“Yields are spiking because Japan is dumping Treasuries. The mother of all short squeezes is coming for the Yen. Crash stocks. Save bonds. The reverse carry trade. The Godzilla Margin Call,” he laid it out in a post on X.
History offers both sides a lesson. The 1998 intervention did not stop the yen’s slide either. The turn came in October that year. A sudden unwind of the yen carry trade lifted the currency about 15% in one week. In that trade, investors borrow cheap yen to buy assets abroad.
A September hike would shrink the rate gap that keeps today’s yen carry trade alive. Closing those positions forces selling worldwide. The BOJ meeting is the real test. It could hand the yen the support that $87 billion could not buy, or start the unwind the skeptics describe.
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