Joint Action Fails to Secure Lasting Gains for Japanese Yen

Commerzbank's Thu Lan Nguyen doubts that last week's historic intervention in USD/JPY will secure lasting gains for the Japanese Yen. Despite impressive scale, markets have already surrendered part of their gains since the intervention.

The fundamental problem is that a central bank's foreign exchange reserves are finite. The Bank of Japan would deplete its reserve faster with larger interventions. Involving the Federal Reserve solves this issue as it can create unlimited US dollars to sell against the yen.

For the yen to retain gains, markets must be convinced that coordinated interventions will remain on the table going forward. Treasury Secretary Scott Bessent has suggested US willingness to act again if necessary. However, opaque measures like reported Fed sales of euros risk creating uncertainty.