The Japanese Ministry of Finance confirmed that Japanese and US authorities jointly purchased yen on July 31st to intervene in foreign exchange markets, marking the first coordinated action by the two nations in 15 years since the 2011 Great East Japan Earthquake. Global Market Strategist Tomo Kinoshita at Invesco Asset Management (Japan) Limited has provided commentary on the US-Japan joint intervention, now forecasting the Bank of Japan's next rate hike to occur in October rather than the previously anticipated December. He also maintains the view that further rate hikes by the Federal Reserve this year are unlikely.

If this assessment proves correct, continued rate hikes by the Bank of Japan would help narrow the US-Japan interest rate differential, providing support for the yen. Consequently, the forecast for the USD/JPY exchange rate at the end of 2026 remains within the 150 to 155 range. The dollar-yen rate briefly approached the 164 level at the end of July. Japanese authorities are likely concerned that yen depreciation would accelerate inflation, while US authorities may worry that dollar strength would weaken US export competitiveness and that turbulence in Japanese financial markets, such as rising yields on long-term Japanese government bonds, could push up US long-term Treasury yields.

From the current situation, US and Japanese authorities are strengthening their collaboration to address the weak yen. At the monetary policy meeting on July 30-31, the Bank of Japan signaled a more hawkish stance than previously. In its latest Economic and Price Outlook Report, the BOJ emphasized that core inflation could exceed its 2% target level, negatively impacting economic activity. Furthermore, BOJ Governor Kazuo Ueda stated at the post-meeting press conference that "the pace of rate hikes may accelerate," suggesting the central bank may no longer maintain a rhythm of raising rates roughly every six months and could adopt a faster pace. These statements are believed to help strengthen the effectiveness of the current round of currency intervention.

The BOJ's gradual approach to raising policy rates has been not only due to the need to assess whether each hike would cause unexpected consequences but also to political pressure from the government, which has tended to favor accommodative monetary policy. However, the US government's willingness to participate in the joint intervention reflects not only its concern about yen depreciation but also suggests it may welcome a more aggressive tightening stance from the BOJ. If the Japanese government's constraints on the central bank's tightening are weakened due to US influence, the environment for the BOJ to pursue tighter policy could become more favorable. Based on these latest developments, the forecast for the next BOJ rate hike has been moved from the original December estimate to October.

Financial markets are gradually pricing in the possibility of an earlier rate hike, which appears to be putting some upward pressure on the yen. Invesco notes that the latest US-Japan joint intervention has had a significant impact on exchange rates. Market opinion remains divided on whether the intervention effect will be short-lived or sustainable. Invesco believes that the potential for further intervention by both governments will continue to alleviate selling pressure on the yen in the short term. Prior to this intervention, financial markets had accumulated large speculative short yen positions. If the market becomes increasingly concerned about the possibility of another joint US-Japan intervention, these positions could be forced to cover, further driving yen appreciation. Historical experience shows that the impact of Japan's yen-buying intervention on market positioning has been inconsistent. During Japan's Ministry of Finance support for the yen in July 2024, market expectations for a Fed rate cut were rising. In this context, speculative positions on CME yen futures shifted from heavily net short to net long. Subsequently, combined with the Fed's rate cut in September of the same year, the yen rose from over 160 yen per dollar in early July to nearly 140 yen per dollar by mid-September.