$87B Intervention Backfires as Arbitrageurs' Shorting Opportunity: Yen Gives Back Half of Gains, Nears 160, Government Backs Autumn Rate Hike

The record-breaking joint Japan-U.S. foreign exchange intervention only brought a brief rebound for the yen, instead becoming an opportunity for carry traders to rebuild yen short positions at higher levels. Driven by the massive interest rate differential, funds continue to buy high-yield currencies such as the Australian dollar and the U.S. dollar, making it difficult for carry trades to cool down. The yen is again approaching the 160 level and faces the risk of retesting 162.