Japan's Finance Minister Katsunobu Kato confirmed on August 3 that the Japanese and U.S. governments jointly intervened in the foreign exchange market on July 31 to buy yen, and did not rule out additional measures depending on market conditions. This marks the first time in 15 years the two nations have coordinated to support the yen. Based on the Bank of Japan's latest monetary market data, it is estimated that the BOJ likely deployed $53 billion on July 30 and $34 billion on July 31, totaling $87 billion (approximately 11 trillion yen), to bolster the yen's value. The announcement initially strengthened the yen sharply, but it subsequently experienced a brief selloff, raising doubts about the sustainability of the rebound.

Since 2022, the yen has been in a prolonged decline. Can this joint intervention reverse the long-term depreciation trend? The U.S. appears to be leveraging the move for broader strategic gains, as U.S. Treasury Secretary Janet Yellen stated that the U.S. participated in the coordinated action to counter "disorderly" yen movements and would "not hesitate to join further joint interventions." Yellen also expressed strong support for Japan's macroeconomic policy direction, emphasizing that the U.S. "strongly supports Japan's decisive market and monetary measures to correct the yen's severe undervaluation."

According to analysts, the U.S. Treasury may be funding yen purchases by selling euros rather than dollars to avoid pressuring the greenback and to maintain the appearance of its "strong dollar" policy. Last week, the New York Fed sold euros and bought yen on behalf of the Treasury. This approach differs from past U.S. interventions, which directly used dollars. David Forrester, senior strategist at Credit Agricole in Singapore, noted that the U.S. likely does not want to be seen as selling dollars. The U.S. adheres to a strong dollar policy and wants to avoid being perceived as attempting to gain a competitive advantage by weakening its currency, which would violate G20 consensus on foreign exchange markets.

Jason Wong, FX strategist at Bank of New Zealand in Wellington, commented, "If the U.S. Treasury directly sold dollars, it would look bad, so they used euros instead. But the end result is the same—they still need to reposition back into euros later, potentially selling dollars in a less transparent manner." Robin Brooks, senior fellow at the Peterson Institute for International Economics, argued that if the U.S. buys yen by selling euros, investors will infer that U.S. officials are trying to avoid Japan selling U.S. Treasuries to finance the intervention, which is essentially a distortion. This approach may ultimately weaken rather than strengthen market confidence in the yen.

Since 2022, the yen has continued to weaken. According to data from the U.S. Commodity Futures Trading Commission as of July 28, net short yen positions held by asset managers and leveraged funds rose to their largest since 2024, while hedge fund bearishness remained near its highest since 2007. This suggests significant speculative bets against the yen. UBS research noted that the MOF's recent intervention temporarily suppressed the upside risk for USD/JPY but did not change the fundamental drivers of yen weakness. The intervention pushed the rate from around 163.6 to 158, then stabilized above 160. The lack of a clear "final warning" before the action has increased uncertainty about the timing of future interventions, potentially curbing speculative yen shorts more effectively.

Market attention now shifts to whether the yen can break through the 155 level, a key test for the sustainability of the rebound. Shusuke Yamada, chief FX and rates strategist at BofA Securities Japan, said that if this level cannot be breached, the market may believe policymakers have exhausted their tools. If USD/JPY falls below 155, trading logic could shift from "buying on dips" to "selling on rallies." UBS believes U.S. economic data and Fed credibility will be key variables for USD/JPY. If inflation and employment remain strong and the Fed raises rates in September with a hawkish bias, the rate could return above 163; if data moderates and the Fed holds rates steady, falling U.S. bond yields could drive a moderate decline in USD/JPY; if data supports further tightening but the Fed remains on hold, markets may question its commitment to fighting inflation, potentially pushing the rate to 150-152.

TD Securities said the intervention's momentum could drive USD/JPY to 153, but unless the BOJ takes more action or the U.S. Treasury makes a full commitment, this would only be temporary. Five key reasons—U.S.-Japan bilateral trade dynamics, the risk of a "sell the U.S." sentiment resurgence, the risk of deteriorating U.S. credibility, political considerations, and the risk of systemic shocks—lead us to believe the U.S. Treasury is reluctant to fully support the yen.