USDJPY Bounces Back Above 159 as Carry Trade Remains Strong
The USDJPY currency pair has rebounded to above 159 in just over two weeks after a joint US-Japan intervention attempt pushed it from 164 to 155. The speed of this recovery suggests that the carry trade remains strong.
The intervention, which occurred on August 2, involved buying euros through the EUR/JPY cross, backed by both Treasury Secretary Bessent and Japan's Ministry of Finance (MoF). This move was aimed at reducing the yen's value, but it only had a temporary effect.
The carry trade is fueled by the yield gap between US and Japanese bonds. Despite the BOJ raising its policy rate to 1.0% in June, Japan's borrowing costs remain lower than those in the US. This has kept USDJPY supported by three key factors: elevated US Treasury yields, a widening trade deficit in Japan, and rising JGB yields.
The risk of another intervention is high, as Japanese authorities have signaled their willingness to intervene again near 160 with US backing. Traders should be cautious when approaching this level, as it may trigger another coordinated response from the two countries.