USD/JPY is back above 160 despite record intervention, reinforcing UniCredit’s warning that FX operations struggle when fundamentals resist them.
The US Dollar to Japanese Yen (USD/JPY) exchange rate closed Friday at 160.10, almost five Yen above the lows reached after the extraordinary joint US-Japan intervention.
That rebound is the uncomfortable backdrop to UniCredit’s question: “Is FX intervention a ‘losing game’? The JPY’s case.” The current analysis was published on 26 August.
UniCredit analysts had already made their underlying objection unusually clear before the joint operation.
“It would be a waste of FX reserves if the USD is already strong due to factors outside of Japan’s control,” the bank argued in earlier Yen analysis.
At the same time, UniCredit expected officials to keep trying: “We expect intervention to resume.”
The issue was never whether intervention could move USD/JPY for a few sessions.
It was whether intervention could overcome the interest-rate gap, expansionary Japanese fiscal policy and the economic damage from high imported energy costs.
Japan has now spent a record ¥15.4tn, around $96.5bn, intervening between 30 July and 26 August, yet Dollar-Yen finished August back above 160.
That outcome gives the “losing game” thesis more force.
As we noted in our recent Yen forecast, markets increasingly need the Bank of Japan to do part of the work itself.
A September rate increase could help.
Without a credible path towards further tightening, another intervention may again prove spectacular in the moment and frustratingly temporary afterwards.
Our currency coverage draws on live market data, official economic releases and published bank research.
