USD/JPY Recovery Fails to Close Rate Gap as Follow-Up Intervention Lacking

The USD/JPY exchange rate has made significant progress in recovering from its August 1 intervention, reaching a two-week high of 159.638. This recovery is notable as it shows that the intervention alone was not enough to close the rate gap between the US and Japanese economies.

Despite the coordinated effort between Japan and the US to intervene in the market, the yen has continued to lose value against the dollar. The absence of follow-up action from authorities has encouraged speculators to bet against the currency, with the pair now having retraced roughly half of the intervention-led slump.

The August 1 intervention was a joint effort between Japan and the US, marking the first coordinated intervention since 2011 and the largest yen intervention in 15 years. However, the market has stopped believing in the threat of official selling, with speculators now focused on the absence of follow-up action rather than the potential for future intervention.

The BoJ-Fed policy differential stands at 262.5 basis points, with one 25bp hike priced by year-end. This disparity is expected to continue driving the dollar higher against the yen, despite the recent recovery.