Joint Currency Intervention Falters as Yen Weakens Back to Previous Levels

The joint intervention by Japan and the US to support the Japanese currency has lost momentum. The yen, which strengthened from 163 to 157 yen per dollar after the intervention on July 30, has weakened back to 159 yen per dollar by August 11.

The intervention saw Japan sell up to $59 billion in assets to buy yen, with the US also participating but not disclosing its transaction volume. Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent stated their readiness to repeat the intervention if necessary.

Economists have questioned whether this intervention addresses the underlying causes of the yen's weakness, including high interest rates in the US compared to Japan's 1.0% rate. The significant difference between these rates fuels the carry trade, where investors borrow funds in yen at low rates and invest them in dollar-denominated assets with higher yields.