Bessent Backs Himself for Successful Yen Intervention

The US Treasury Secretary, Bessent, has backed himself for successful intervention in the yen, describing it as 'very undervalued'. This intervention is a joint effort between Washington and Tokyo, making it the first such exercise since the Asian FX crisis in 1998. The timing of this move is significant, as it coincides with the Fed cycle.

According to ING's fair-value model, the yen is around 20% undervalued against the dollar. Francesco Pesole, ING's FX Strategist, notes that their Behavioural Equilibrium Exchange Rate (BEER) model shows that the yen has been persistently overvalued by more than 20% throughout 2026.

The success of this intervention depends on various factors, including higher interest rates in Japan and durable yen appreciation. Bessent is betting that the downside for the yen is limited and that a weaker USD/JPY can help US manufacturers compete more. The added benefit of intervention is to discourage other Asian countries from weakening their currencies.

Japan's growth strategy, aiming to deploy JPY370tr ($2.3tr) of public-private investment by 2040, has a clean link to the yen. Asian nations like Japan and Korea acknowledge that weak productivity growth amidst ageing populations is leading to investment outflows in search of higher returns.

ING's base case assumes that US-Japan growth and interest rate differentials narrow, resulting in USD/JPY at 158 by the end of 2026 and 152 by the end of 2027.