Japan's Yen Intervention Efforts Fail Again, USD/JPY Bulls Take Control
The Japanese government's recent yen intervention efforts have failed to stem the currency's decline, leaving bulls in control. In August, Tokyo spent a record $96.4 billion in a single month to support the yen, but this move only temporarily dampened speculative demand for the USD/JPY pair.
Hedge funds have been rebuilding long positions in the pair over the past two weeks, hinting at another failed intervention attempt. The Bank of Japan's (BoJ) monetary policy stance is also a concern, with some analysts predicting a rate hike as early as its next meeting in September.
According to Scott Bessent, Japan is the largest foreign holder of US Treasuries, and sharp swings in the yen could negatively affect the US Treasury market. However, the Treasury Secretary's view that a decline in the USD/JPY requires the BoJ to tighten monetary policy is only part of the story.
The Federal Reserve's (Fed) policy stance also matters, with derivatives markets raising the odds of a Fed rate hike in September to 66%, while the probability of two rate hikes in 2026 has climbed to 50%. Against this backdrop, USD/JPY bears face an uphill battle.