Joint Yen Intervention Fails to Address Underlying Causes

Japan and the US intervened in the foreign exchange market for the first time in 15 years, buying yen to stabilize its value. The move came as the yen hit a 40-year low against the dollar, weakening to around 164 per dollar in late July. The intervention was a joint effort between the two countries, with Japan purchasing its currency 'in coordination with the US Department of the Treasury' on Friday.

The Japanese Finance Minister Satsuki Katayama confirmed the intervention, stating that it aimed to counter 'excessive volatility and disorderly movements'. Both sides have stated that they will not hesitate to conduct further joint intervention if necessary.

However, experts warn that the joint intervention can only provide temporary relief without addressing the underlying causes of the yen's weakness. Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said that the yen's decline stems from concerns over Japan's fiscal expansion and perceptions that the BOJ is 'behind the curve' on interest rate hikes.

Currency intervention can only provide temporary relief without addressing the underlying causes, according to Muguruma. Takahide Kiuchi, executive economist at the Nomura Research Institute, echoed this view, saying that sustained yen strength requires improved economic fundamentals or weaker expectations of further US Federal Reserve rate hikes.