Yen Rally Fades as Focus Shifts to Policy

The coordinated U.S.-Japan intervention to support Japan's embattled yen has lost momentum. One week after the joint effort, the initial rally is waning as the currency drifts lower.

According to market data, the yen had initially lifted as high as 155 to the dollar before the intervention on July 31, down from just above 163 beforehand. However, since then, it has given up almost half of those gains to settle around 158.50 to the dollar.

Robert Sockin, chief U.S. economist at PGIM, is skeptical about the effectiveness of the strategy, writing in a note that 'the intervention is no doubt squeezing out short yen positions in the short term, but I'm skeptical that it will work in reversing the JPY weakness trend by itself...and it may backfire spectacularly.'

The U.S. Treasury Secretary acknowledged that intervention alone would not determine the currency's direction, stating 'You can give market signals with intervention, but it's policy that turns it.' The focus is now shifting to domestic policy changes rather than government-backed support measures.