Yen Weakness Persists Despite Japan's Interventionist Efforts

Japanese policymakers are struggling to provide durable support for the yen amid renewed weakness following recent joint US-Japan FX intervention that briefly pushed USD/JPY below 156. The government's decision to cut the sales tax on food for two years, at a cost of JPY 4 trillion (around 0.6% of GDP) in lost revenues annually, has drawn criticism from markets and politicians.

The measures do not structurally improve Japan's growth, leaving the yen lacking support. Finance Minister Katayama pledged to refrain from financing this tax cut through Japan's deficit, but the real litmus test for the currency may be yet to come.

The past couple of days have seen the yen gradually depreciating again after the joint intervention. The FX market is watching for signs of new interventions or more structural support for the currency, but it remains unclear whether these measures will provide any lasting relief.