US-Japan Intervention Strengthens Yen, But Limited Impact on Japanese Equities

The joint US-Japan yen-buying intervention sent shockwaves through the currency market in July. The yen strengthened from around 164 per dollar to about 157 per dollar, but its impact on Japanese equities is likely to be limited.

A key reason is that recent gains in Japanese equities have been led by AI- and semiconductor-related sectors, which are primarily supported by strong volume growth rather than a weak yen. Although a stronger dollar reduces the value of revenue earned overseas when translated into yen, sales driven by robust global demand are strong enough to offset exchange rate fluctuations.

The joint intervention may have indirectly strengthened the case for further policy normalization. BOJ Governor Kazuo Ueda opted to emphasize upside inflation risks during the BOJ's policy meeting in July. This hawkish turn suggests that policymakers are increasingly aware of the impact monetary policy decisions have on currency levels.