US-Japan Intervention Strengthens Yen, Pressures BOJ to Hike Rates in September

The yen has been reassessed after a joint U.S.-Japan currency intervention. The United States standing behind Japan has caused global financial institutions to revise their exchange-rate forecasts or warn that the risk of transactions selling yen to buy dollars has grown compared with before.

Bank of America lowered its year-end forecast for the yen against the dollar from 152 to 149, which would make the yen about 6% stronger than now. Nomura Securities presented an even lower year-end forecast of 147.5.

The U.S.-Japan intervention has effectively removed the constraint that limited Japan's interventions in the foreign exchange market due to its treasury constraints. The United States Treasury Secretary Scott Bessent said they would do 'whatever it takes' to support Japan, echoing former European Central Bank President Mario Draghi's phrase during the 2012 eurozone crisis.

The joint intervention has curbed the appetite for dollar/yen transactions, as financial institutions are now hesitant to borrow and short yen due to the increased risk of U.S. participation in future interventions.