Japan's Intervention Stalls at the Surface

The latest intervention by Japanese authorities has changed the trading conditions in USD/JPY, but it may not be enough to change the underlying trend. The operation, which saw Japan purchase as much as $85 billion of yen across July 30 and 31, was the largest two-day operation since the Fukushima disaster in 2011.

The US also offered symbolic and operational support, making it a broader policy signal. However, the yen's response has been relatively restrained, suggesting that the weak yen still reflects a substantial yield disadvantage and a persistent preference among Japanese investors for holding foreign assets.

While intervention can change the speed of the market, it may not be able to permanently change its direction. The authorities have placed a ceiling over speculative enthusiasm, making the short-yen trade more dangerous.