The yen is the worst-performing currency among G10 nations this month, as the impact of recent joint intervention by Japan and the United States diminishes. Market participants are once again betting on potential further intervention by Japanese authorities to stabilize the currency.

Data shows the yen has depreciated about 0.5% against the US dollar since August, reversing a roughly 3.2% gain in July. Although weaker-than-expected US employment data on Friday temporarily weakened the dollar and led to a brief yen rebound, the currency has since fallen back, with the dollar-yen pair now trading above 158.

With Japan entering the Obon holiday week, market liquidity may decline, prompting traders to be wary of sharp exchange rate movements in thin conditions, which could trigger another round of intervention. "During Japan's holiday period, market participation may decrease, and the domestic event calendar is relatively light. Investors will continue to focus on comments from Japanese and US officials regarding their intervention stance," said Yujiro Goto, strategist at Nomura Securities. Earlier this month, Japan and the US conducted their first joint yen-buying intervention since 1998, when the yen fell to near 40-year lows, with the dollar-yen pair approaching 164. After the intervention, the yen rose to around 155, but the gains have since dissipated.

Following the joint intervention, speculative funds quickly reduced their bets against the yen. Data from the Commodity Futures Trading Commission (CFTC) shows that as of August 4, leveraged funds' net short yen positions had fallen to about 63,600 contracts, down significantly from the near-record high of 138,000 contracts at the end of June. However, most analysts believe that intervention alone is unlikely to change the yen's long-term weakening trend. The large interest rate differential between the US and Japan, concerns about Japan's fiscal expansion, and geopolitical risks remain key factors weighing on the yen. Goldman Sachs strategists said the intervention's impact was relatively limited, mainly because the underlying factors driving the yen's weakness persist. If there is no clear change in the global environment or policies, depreciation pressure on the yen could reemerge.

Meanwhile, the Bank of Japan has signaled a potential further interest rate hike. A summary of opinions from the BOJ's July meeting showed that some members believe upside risks to inflation have increased and that the pace of rate hikes may need to accelerate. The market currently sees a roughly 66% probability of a BOJ rate hike in September. On the other hand, weak US employment data has reduced market expectations for the Federal Reserve to continue tightening. Traders now see the probability of a Fed rate hike in September at around 40%, down from about 60% before the employment data release.

Japanese companies have a more complex attitude toward a weak yen compared to financial markets. In the past, a weaker yen was typically seen as a boon for exporters, as it increased the value of overseas earnings when converted back to yen. However, businesses are now increasingly concerned that persistent depreciation is pushing up import costs, weakening consumer spending, and dragging on economic recovery. Kenichiro Fujimoto, Chief Financial Officer of Mitsubishi Electric, said a weak yen does not necessarily mean the Japanese economy benefits. "Problems that affect the entire Japanese economy also affect us," he said. Japan's economy is heavily dependent on imports of energy, raw materials, and food, and a weaker yen directly pushes up corporate costs and may weaken domestic demand. Norihiko Ishiguro, Chairman of the Japan External Trade Organization (JETRO), said that while a weak yen does benefit exports, Japanese companies rely heavily on imported raw materials, and "it cannot be simply assumed that exporters are always winners."

Sharp exchange rate volatility has already affected Japanese corporate business decisions. Fast Retailing, the parent company of Uniqlo, expects to raise prices on some autumn and winter items by about 4% to offset the cost pressure from the yen's depreciation. Takeshi Okazaki, the company's CFO, said that if exchange rates change too quickly, it is difficult for companies to respond in a timely manner, which could significantly impact performance. Ryohin Keikaku, which operates Muji brands, has chosen to increase its own production ratio and reduce import dependence to buffer cost pressures. At the same time, some large trading companies that benefit from a weak yen have also begun to emphasize the importance of exchange rate stability. Makoto Tanaka, CFO of Mitsui & Co., said the company hopes for market stability and lower exchange rate volatility. Although a weak yen boosts overseas earnings, sharp fluctuations are increasing operational difficulties. Another trading giant, Mitsubishi Corporation, also said it would adjust its previous business assumption of a dollar-yen rate of 150 based on exchange rate changes. A JETRO survey in March showed that nearly one-fifth of Japanese companies viewed a dollar-yen rate of 120 to 124 as the most ideal level, while only about 11% hoped for a rate above 150. However, expectations for the yen to return to the 120 to 130 range are waning. Kenichiro Fujimoto, CFO of Mitsubishi Electric, said that considering Japan's economic fundamentals and its trade balance, "it may be difficult to see the dollar-yen rate return to the 120 to 130 level again in the future."