With the recent boost from intervention measures fading, the yen has been the weakest performer among G-10 currencies this month, keeping markets on high alert for potential renewed action by Japanese authorities. Since August, the yen has fallen about 0.5% against the U.S. dollar, erasing some of the gains from July's 3.2% rally. Last Friday, weaker-than-expected U.S. nonfarm payroll data briefly pressured the dollar, giving the yen a temporary bounce, but it quickly resumed its downtrend. With Japan on holiday on Tuesday, market participants worry that thinning liquidity could create conditions for a new round of intervention.

Despite this, even after the historic joint intervention by Japan and the U.S., the yen's weakness is likely to persist, mainly due to significant negative factors such as concerns over potential expansion of Japan's fiscal spending. A team of strategists at Nomura Securities, including Yujiro Goto, noted in a report, "Japan is in the Obon holiday period, market participants may be limited, and the domestic economic data schedule is relatively light. Market attention will continue to focus on the intervention stance of Japanese and U.S. authorities, with investors closely watching officials' comments and statements."

Earlier this month, the yen fell to near 164 yen per dollar, a 40-year low, before Japan and the U.S. conducted their first joint yen-buying intervention since 1998. The move briefly pushed the yen to around 155, but the rally has since faded, and the yen has now fallen back below the 158 level. This reversal highlights that, with core factors driving the yen's weakness unchanged, intervention alone is insufficient to reverse the overall downtrend. Although Japan and the U.S. have warned they are ready to act again if needed, factors such as the massive interest rate gap with the U.S., concerns over Japan's fiscal outlook, and geopolitical uncertainty continue to weigh on the yen.

A team of strategists at Goldman Sachs, including Kamakshya Trivedi, stated in a report, "We believe the market's relatively muted response to the intervention reflects deep-seated fundamental reasons behind the yen's weakness." They expect that, "unless the global macro environment shifts or there is a policy surprise, the depreciation pressure on the yen will re-emerge over time."

Meanwhile, the Bank of Japan's summary of opinions from its July meeting warned of upside risks to inflation, with one board member mentioning the possibility of accelerating the pace of interest rate hikes. Overnight index swap data shows the market pricing in around a 66% probability of a rate hike in September, while an October move is almost fully priced in. Based on analysis of central bank accounts, Japanese authorities likely spent about $34 billion on July 31 to intervene in the currency market to support the yen. The day before, authorities were estimated to have deployed about $53 billion, which, if confirmed, would be the largest single-day intervention on record.