Yen Intervention Fades: Worst G10 Performer in August as Markets Await BOJ's Next Move

The Japanese yen, after a strong rebound in July, has once again weakened in August. Despite the first coordinated intervention by Japan and the United States since 1998, the yen has underperformed all other G10 nations as the intervention's effects fade.

Data shows the yen has depreciated approximately 0.9% against the US dollar in August, partially erasing the 3.2% gain seen in July. Authorities stepped in when the yen fell to nearly 164—a 40-year low—temporarily pushing the exchange rate back to around 155. However, it has since retreated to 158.85.

Analysts estimate Japan spent approximately $53 billion on July 30 and $34 billion on July 31 in intervention efforts. If confirmed, the July 30 intervention would mark the largest single-day intervention in history.

Analysts from Goldman Sachs and Nomura Securities point to the substantial interest rate differential between the US and Japan, concerns over Japan’s fiscal spending, and geopolitical uncertainty as key reasons for continued yen weakness. Even as Tokyo and Washington warn they are ready to act again, analysts believe downward pressure on the yen will persist unless there is a major shift in global conditions or policy.

Additionally, the Bank of Japan’s July meeting opinion summary indicated rising inflation risks, with some committee members suggesting an acceleration in rate hikes. The foreign exchange market currently prices in a 63% chance of a rate hike in September, with a hike in October nearly fully anticipated.

With Japan currently in the Obon holiday period, market participation is low and liquidity thin. Traders are closely watching whether authorities might seize this moment of low liquidity to intervene again.