Japanese Finance Minister Shunichi Katayama recently confirmed that Japan and the United States have jointly intervened in the foreign exchange market. This marks the first joint intervention between the two countries in 15 years, following their last coordinated action after the Great East Japan Earthquake in 2011. Analysts believe this joint intervention aims to leverage the bilateral partnership to send a strong policy signal, curbing the market's persistent bearish view on the yen. However, this coordinated effort is unlikely to alter the yen's long-term weakening trend and may increase pressure on Japan to adjust its policies.

Securing Space Through Collaboration

Since 2022, the Japanese government and central bank have repeatedly spent enormous sums to intervene in the forex market, but structural factors driving yen depreciation, such as the US-Japan interest rate differential and carry trades, remain unchanged, failing to stop the yen's decline. By late July this year, the yen's exchange rate approached 164 yen per US dollar. The limited effectiveness of unilateral intervention reflects negative market expectations for the yen and the Japanese economy. Against this backdrop, Japan turned to the US to coordinate intervention, hoping to send a stronger policy signal to the market. As massive financial outlays yielded no results, the Bank of Japan would need to raise interest rates to stabilize the yen, which would inevitably increase Japan's debt burden and squeeze fiscal space. Japan hopes that joint US-Japan intervention can prevent further yen depreciation without harming current fiscal conditions, helping Japan "secure space through collaboration" to ease its complex fiscal situation. From the US perspective, the yen's sharp fluctuations and prolonged low interest rates are not in America's economic interests, especially if Japan's sale of US Treasuries causes significant volatility in bond yields. Joining Japan to send a strong market signal also reflects US concerns about the yen's decline. However, US participation has raised doubts about Japan's ability to stabilize its currency independently. Daisaku Ueno, chief strategist at Mitsubishi UFJ Morgan Stanley Securities, noted that this action may create an impression that Japan is gradually becoming a country unable to stop yen depreciation without US help.

Temporary Relief, Not a Lasting Cure

The joint US-Japan intervention provided short-term support for the yen's exchange rate, which rebounded from a near 40-year low and briefly rose to around 155 yen per US dollar. However, market participants widely believe this coordinated action can only "buy the yen some time," and reversing the yen's long-term weakness faces multiple challenges. "Intervention is ultimately a temporary fix; it doesn't fundamentally change the exchange rate trend," said Kazuya Kamada, senior forex analyst at Forex Online Company, a Japanese research firm. He noted that during the Asian financial crisis, when yen depreciation intensified, Japan and the US also coordinated intervention, which stabilized the yen only briefly but failed to prevent further decline. Jiang Zefuhong, an analyst at Standard Chartered Bank, believes that strong demand from import companies to buy US dollars may push the yen back to around 160 yen per US dollar. In fact, the yen's challenges are not entirely driven by market speculation. Ueno analyzed that the current yen depreciation is not solely due to speculative funds; it's rooted in deeper factors like declining credibility of Japan's fiscal and monetary policies and persistent capital outflows. Additionally, some market analysis firms suggest that the US will not fully support the yen, as sustained intervention could lead to changes in US-Japan trade dynamics, rising "sell America" sentiment, and financial market volatility, all of which could adversely affect the US.

Growing Policy Pressure

Following the joint US-Japan intervention, Japan may face increased pressure to adjust its policies. A Reuters report noted that after US "intervention," Japan may need to offer some form of "repayment." Tohru Sasaki, chief strategist at Fukuoka Financial Group, said that after gaining US support, Japan must also respond to US expectations for the Bank of Japan to raise interest rates early, potentially making a September rate hike a "necessary option." Market expectations for an early BOJ rate hike are rising. Data from Japan Tanshi Research Company shows that as of the 3rd, the market-assigned probability of the BOJ raising rates in September is 52%, up rapidly from 31% on July 31. Exchange rate intervention can only change short-term market sentiment, not replace policy adjustments. Tsuyoshi Ueno, an economist at Nomura Research Institute, pointed out that to truly reverse the yen's depreciation trend, Japan needs fiscal reform and a stable source of revenue to ease market concerns about fiscal deterioration. However, for the current trouble-ridden Japanese government, whether it can strictly adhere to fiscal discipline and adjust related policies in the short term remains highly questionable.