Yen Rallies on US Intervention, But Analysts Doubt Sustained Strength

The US intervention to prop up the yen has given the currency a temporary boost, with the exchange rate rising by around 5% before paring gains on Monday. The coordinated effort between the US and Japan saw the yen strengthen from just above 163 to 157 against the dollar, its lowest level in four decades.

However, analysts are skeptical about the prospects for sustained rally in the yen, citing the country's underlying policy mix as a major concern. UBS strategists Teck Leng Tan and Dominic Schnider wrote that Japan's 'policy mix remains unlikely to generate sustained yen strength' due to the Bank of Japan's gradual policy normalization and negative real rates.

The US Treasury's involvement in supporting the yen has been seen as a significant development, with some reports suggesting that it sold euros rather than dollars to buy yen. This approach is unusual, as coordinated intervention typically involves selling dollar assets to fund yen purchases.

Despite the US support, the greenback's reaction on Monday was modest, with ING markets head Chris Turner attributing this to the unresolved issue of whether the Federal Reserve will hike interest rates in September.