Yen: Weakness Offsets Intervention Impact - MUFG

MUFG analyst Michael Wan noted that US long-term Treasury yields have rebounded to near pre-repurchase-operation levels, with the 10-year yield at 4.7% and the 30-year yield at 5.24%. This trend continues to pressure risk assets while largely offsetting the positive impact of recent Japanese authorities' intervention to support the yen.

**Treasury Yield Rebound Dominates FX Market**

The rebound in US Treasury yields has re-widened the US-Japan yield differential, a core factor driving USD/JPY strength. Despite previous large-scale market intervention by Japanese authorities, market analysis suggests that as long as the Fed does not signal clear rate cuts, the yield differential will continue to attract capital flows into dollar assets, keeping the yen under pressure. MUFG analyst Derek Halpenny previously noted in a report that with the yen's decline pace flattening, Japanese officials may avoid further intervention measures to support the currency.

**Intervention Effectiveness Faces Structural Challenges**

Historical data shows that unilateral intervention has limited effectiveness in changing the yen's long-term trend. According to reports, Japan deployed approximately ¥9.2 trillion and ¥15.3 trillion in interventions in 2022 and 2024 respectively, yet USD/JPY still depreciated from around 152 to the 162 level. Market views suggest Japan simultaneously faces structural issues including fiscal deficits, trade imbalances, and capital outflows—akin to "a bathtub with three holes"—making short-term intervention unlikely to fundamentally reverse the yen's weakness. Additionally, some analysts question the scope of Japan's policy tools, arguing that with 10-year Treasury yields elevated, selling US Treasuries to obtain dollars for FX intervention may be constrained, while BOJ rate hikes would impact the government's own debt-servicing capacity.

**Focus on Fed Policy Signals**

Currently, market attention shifts to the upcoming Fed policy meeting and its communication. MUFG economists emphasize that Fed communication is crucial for yen movements. If the Fed maintains a hawkish stance, the dollar could gain fresh support, making Japanese authorities' efforts to stabilize the currency more challenging. At the time of writing, USD/JPY traded near 158.51, remaining in multi-year high territory.