Yen Rally May Be Short-Lived Despite Japan-U.S. Intervention

The yen strengthened after Japan-U.S. intervention, but its rally may be short-lived.

The recent intervention has given Tokyo international backing for the first time in over a decade, which could make currency intervention more effective.

However, policymakers are keeping every option on the table, and selling dollars and buying yen can only slow the pace of depreciation.

The Bank of Japan is becoming more divided, with some policymakers arguing that inflation risks justify faster policy normalization. But until the interest rate gap between the US and Japan narrows, demand for the dollar is unlikely to disappear.