Yen Holds Gains Despite Slipping on Tuesday

The Japanese yen held most of its gains from last week's coordinated intervention by Tokyo and Washington, but slipped on Tuesday. The currency had rallied as much as 5% over the last three trading sessions after Japan confirmed the joint action with the US on Friday.

According to Axel Merk, chief investment officer at Merk Investments, 'As most people would agree that interventions in the currency markets have a limited impact in the medium term. So I think it's about signaling and posturing to tell the market, 'Hey! Don't short the yen so much!'

The joint intervention by Japan and the US appears to be signaling to the market not to short the yen, but some analysts remain cautious. TS Lombard analysts led by Daniel Von Ahlen said that yen short positioning is still relatively elevated but is now particularly risky given the risk of intervention by Japanese and US monetary authorities.

The underlying outlook of the yen has not changed, according to BNP Paribas analysts led by Ishan Gurnani. They believe that the pair will end the year higher than current levels, despite the recent gains.