Japan Intervenes In FX Market
Japan intervenes in FX market to stabilize yen
10 August 2026 Key takeaways FX intervention is typically ineffective, but having the issuer of the currency in demand conduct the intervention matters.
However, the BoJ will be under high pressure if the Fed hikes in September, just a day before the BoJ meeting.
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Many factors point to Japanese yen weakness The weakness of the yen is driven by many factors.
Interest rate differentials are just one of them.
Hedging demand after the rally in Japanese stocks is likely another driver of yen weakness currently.
In addition, there are concerns around fiscal policy and a perception that the BoJ is behind the curve.
But a less explored driver is likely the fact that the Fed has been implicitly easing monetary policy this year, accommodating higher inflation in a context when the US economy keeps running a positive output gap.
Will coordinated intervention make a lasting difference? It is in this context that the US Treasury and Japan's MoF engaged in coordinated intervention.
FX intervention is generally ineffective unless imbalances are addressed, but having the issuer of the currency in demand conducting the intervention should boost effectiveness and credibility.
However, coordinated intervention raises the need for credible policy follow-through in Japan to stabilize the yen.
The BoJ will likely be under high pressure if the Fed hikes in September, in our view.
Claudio Irigoyen Global Economist BofAS Antonio Gabriel Global Economist BofAS