The unprecedented coordinated intervention by the United States and Japan is shifting market attention to whether the yen can break through the 155 per dollar level, a threshold strategists view as a key test of the currency's rebound sustainability.

This barrier holds significance beyond typical technical indicators. Japan's interventions in April and May temporarily pushed the dollar-yen pair near 155, but the currency later climbed again, reinforcing the view that official actions were merely buying time. Now, investors are assessing whether a decisive breakthrough could signal a structural shift.

As the Japanese and US governments jointly support the yen - with a level of coordination not seen in decades - the stakes for market bets have risen. This marks the first joint yen-buying intervention by the two countries' foreign exchange authorities since 1998, lifting the yen 5% from near 164 per dollar, a nearly 40-year low. Both governments have signaled readiness for further joint action if needed.

Where to focus

Shusuke Yamada, chief Japan foreign exchange and rates strategist at Bank of America Securities, said in an interview: "This time, the authorities are determined to truly break through the key 155 level. If they fail to breach this threshold, I believe the market will conclude that officials have exhausted their policy tools."

Yamada noted that a sustained level below 155 could trigger a shift in market dynamics. As demand from existing buyers is absorbed, dollar demand may fade. Once the dollar-yen pair breaks out of its recent trading range, Japanese exporters and other investors would increase their selling of dollars. He wrote in a report: "In this scenario, the dollar-yen market dynamic could shift from 'buying the dip' to 'selling the rally.'"

Market positioning could amplify this shift. According to data from the Commodity Futures Trading Commission (CFTC), net short yen positions held by asset managers and leveraged funds have risen to their highest levels since 2024. The dollar-yen pair has now fallen below its 200-day moving average of about 158 for the first time since October.

Chidu Narayanan, a strategist at Wells Fargo, said: "Breaking 155 increases the risk of an accelerated short squeeze. Even partial covering of these positions would generate significant yen demand. As leveraged accounts reduce exposure and positional imbalances are resolved, this opens the door for a deeper correction in dollar-yen, potentially toward 152."

Why doubts persist

Despite this, many on Wall Street remain skeptical about the yen's ability to sustain its gains. They argue that if the Federal Reserve raises interest rates in the coming months, the dollar's yield advantage would only strengthen further. Strategists at Citigroup, including Daniel Tobon, expect the yen's recent strength to prove temporary. They believe that if official intervention ceases, investors may resume using the yen as a funding currency. They forecast the dollar-yen pair will mostly remain within a 156-to-161 range.

Market flows already show signs that the initial yen momentum is fading. Jerry Minier, Citigroup's global head of G10 linear FX trading and EMEA head of FX, noted an increase in buying of dollar-yen in recent sessions. He added that leveraged accounts that had previously bet on official intervention are now locking in profits and closing tactical positions at current levels.

Jane Foley, head of FX strategy at Rabobank, believes the next phase of the yen's recovery depends on convincing investors that Japan's broader policy mix is changing. "For now, concerns about further intervention and a weaker dollar may be enough to prevent a significant rise in dollar-yen," she said. "But for a substantial yen recovery, the market likely needs greater confidence that the Bank of Japan can accelerate its rate hikes, along with more assurance of fiscal prudence."