economy
Why the historic U.S.-Japan intervention has failed to halt the yen’s slide
The Japanese yen has erased about half of the gains from an unprecedented U.S.-Japan intervention less than two weeks ago.
TL;DR
- The yen has lost about half the gains from a U.S.-Japan currency intervention conducted less than two weeks ago.
- The fundamental forces pressuring the yen to multi-decade lows are proving resilient against short-term measures.
- The yield gap between Japan and the U.S., where Japanese borrowing costs are lower, continues to encourage carry trades.
- Intervention has succeeded in reducing speculative excess and raising risks for traders betting against the yen, but has not eliminated the yield advantage supporting the dollar.
- The Bank of Japan's monetary policy and the attractiveness of Japanese assets are crucial for a sustainable yen recovery.
- The 160 yen per dollar level is a political line in the sand, and another rapid move through it could prompt further intervention.
- The U.S.-Japan repo facility can provide dollar liquidity, potentially reducing the need for Japan to sell U.S. bond holdings to finance intervention.