Tokyo's Yen Buying Seen as Range-Bound, Not Trend Reversal

The dollar/yen pair is currently trading around 159.245, with intraday volatility of less than 0.1%, oscillating between support near 159.00 and resistance just below 159.50. Tokyo has intervened multiple times recently to buy yen, but the market characterizes these moves as range-bound operations rather than a trend reversal.

**Intervention Buys Time, Not a Trend**

Japan has conducted several rounds of large-scale intervention this year, with the first round injecting approximately 11.73 trillion yen cumulatively between April 28 and May 27, setting a historical record during the yen depreciation cycle. However, the effect lasted only a few weeks before being reversed. Within just three months, nearly 20 trillion yen in ammunition was deployed, yet the exchange rate remains stuck around 160. Chen Xiayi, Global Investment Strategist at Franklin Templeton Institute, noted that the limitation of repeated intervention lies in Tokyo's desire for a stronger yen without fully bearing the policy costs required to achieve that goal. She analyzed that as long as the US-Japan interest rate differential persists, the cost of borrowing yen remains extremely low, and dollar-denominated assets offer higher returns, carry trades will continue to push the yen outward. Foreign exchange intervention can slow the pace of depreciation, curb excessive speculation, and signal official displeasure, but it cannot change the fundamental arithmetic.

**Subtle Signals from US Participation**

More noteworthy is the US approach of "selling euros, not dollars." Robin Brooks, Senior Fellow at the Peterson Institute for International Economics, believes this "indirect approach" actually weakens the effectiveness of US involvement, as the market will question why the US does not directly sell dollars to support the yen, and whether a "strong dollar" preference remains hidden. Investors may also interpret this as Washington wanting to help Japan but being unwilling to let Japan sell US Treasuries, indirectly posing a veiled test of confidence in US Treasury holdings.

**Risk Points Under the Range-Bound Scenario**

According to market analysis, the probability of any single risk occurring mostly falls within the 20% to 35% range, with the real danger lying in the stacking of risks. If the Bank of Japan falls short of expectations on rate hikes while carry trades are simultaneously rebuilt, the probability of returning to 160 within three months will rise significantly. Over the next quarter, the BOJ's actual interest rate decisions, whether the US Treasury Secretary continues to call the yen "seriously undervalued," the US-Germany 10-year Treasury yield spread, and net speculative short positions in yen futures will serve as key signals to test whether the range can hold.