Key facts
- The Japanese yen saw a sharp increase against the U.S. dollar.
- The yen's recent gains partially reversed losses incurred after a joint U.S.-Japan currency intervention in late July.
- The yen had previously hit a 40-year low of 163.98 per dollar before the intervention.
- Following the intervention, the yen had strengthened to 155.21.
- The yen was trading up 1% at 158.56 per dollar.
The Japanese yen experienced a sharp appreciation against the U.S. dollar on Wednesday, recovering some of the losses sustained after a rare joint intervention by the U.S. and Japan in late July. The specific trigger for this latest move was not immediately clear.
Prior to the intervention, the yen had fallen to a 40-year low of 163.98 against the dollar. Following the coordinated action by U.S. and Japanese authorities, the yen had strengthened to 155.21. As of Wednesday, the yen was up 1% for the day, trading at 158.56 per dollar.
Analysts at Morgan Stanley noted that while the intervention may have temporarily altered market sentiment, the fundamental drivers of the yen's weakness persist. These drivers include near-zero Japanese interest rates, which have made the yen the world's cheapest funding currency, and the need for lower U.S. interest rates or faster tightening by the Bank of Japan to achieve sustained yen strength.
The intervention, which involved Japan selling an estimated $85 billion of U.S. dollars to buy yen and the U.S. selling euros to buy yen, was seen as an effort to curb speculative yen positions and discourage rapid, potentially disorderly depreciation. The participation of the U.S. was also linked to concerns that higher Japanese interest rates could lead Japanese investors to sell U.S. Treasuries, potentially increasing U.S. borrowing costs.