Joint Intervention Fails to Stem Yen's Decline

Despite a joint intervention by Japan and the U.S., the yen has already lost half of its post-intervention gains. The unprecedented step, which saw Tokyo sell as much as $59 billion to buy the Japanese currency, was confirmed by both countries. According to Reuters, the Bank of Japan data suggest that the government sold as much as $58.97 billion.

The intervention, which occurred on July 30, came after years of a weak yen. The Japanese currency has been sliding since 2012, when it traded around 78 to the dollar. Corporate Japan initially preferred a weaker currency, but rising import costs have changed that view in recent years.

Economists point out that the U.S.-Japan intervention doesn't tackle the underlying reasons behind the yen's weakness. These include a large gap between U.S. and Japanese interest rates, concern about fiscal profligacy on the part of Japan's government, and the fact that better yields can be found elsewhere.

The joint action may have been motivated by a need to maintain stable U.S. Treasury yields. Japan is the largest foreign holder of U.S. Treasuries, totaling $1.2 trillion in holdings. Analysts suggest that if Tokyo had decided to sell Treasuries to fund its yen intervention, it would have piled more pressure onto an already-shaky bond market.