If yen nears 155, investors may buy back dollars after intervention-driven strengthening

2026-07-09

More market participants are expecting yen-buying intervention by the government and the Bank of Japan. If the yen strengthens to around 155 per dollar, they are ready to move quickly to buy dollars. The view is growing that any yen strength triggered by intervention will be temporary, and that the yen will then resume weakening beyond current levels.

Yen strength after intervention seen as temporary

'There is not much reason for the yen to strengthen.' That is how Nobuaki Uchimura, head of investment planning at Asahi Life Insurance, describes the market. If the yen strengthens to around 155 per dollar through foreign-exchange intervention or other measures, the company plans to partially remove the currency hedge it uses on foreign bond investments. Unwinding the hedge would be a factor supporting dollar buying and yen selling.

A weaker yen boosts valuation gains on overseas assets. If one sees a high probability that yen weakness will continue over the long term, it is easier to seek profits by removing hedges during periods when intervention or similar moves temporarily push the yen stronger. 'If the hedge cost based on the short-term rate gap between Japan and the U.S. disappears, U.S. Treasury yields become more attractive than Japanese government bonds,' Uchimura said.

Expectation of continued yen weakness dominates

The yen traded in the 162.70 yen zone against the dollar in the New York foreign exchange market on the 8th, and remained in the 162-yen range in Tokyo trading on the 9th. It is approaching the 162.84 yen low touched on the 1st, the weakest level in 39 and a half years, after U.S. President Donald Trump said the ceasefire with Iran was 'over.'

With the yen trading at a level far weaker than the 160.72 yen seen just before intervention on April 30, caution is spreading in the market that 'the next intervention could come as a surprise.' There is also a view that weak U.S. economic data, including consumer price index (CPI) and producer price index (PPI) figures due next week, could prompt a correction in recent dollar strength.

Not only institutional investors but also importers are preparing for a reversal of yen weakness and dollar strength. 'There are many dollar-buying and yen-selling orders from importers placed around 157 yen,' said Keiichi Iguchi, senior strategist at Resona Holdings, who closely follows client company behavior.

In April's foreign-exchange intervention, the move from 160 yen to 155 yen amounted to only 5 yen. Importers actually managed to buy dollars around 157 yen. 'The view that there would be no stronger yen than that time has become overwhelmingly common,' Iguchi said.

Options market also wary of yen weakness

The view that a temporary bout of yen strength after intervention will be followed by another leg of yen weakness is also visible in the currency options market.

In dollar-yen trading, the risk reversal, which subtracts put options from call options, has stayed in the mid to late negative 1% range for one-month maturities since the late-April intervention. That indicates sustained demand for yen calls. Dealers and hedge funds, among other short-term players, appear to be preparing for a sharp bout of yen strength and dollar weakness triggered by intervention or similar action.

The trend becomes less pronounced at longer maturities. This week, the one-year tenor moved into positive territory, indicating caution over yen weakness. It is the first time since November 2022, or 3 years and 8 months. 'With the Middle East situation still unclear, energy companies likely want to at least curb foreign-exchange risk from yen weakness,' said Yuji Saito, executive adviser at SBI FX Trade.

In the currency options market for euro-dollar trading, the one-year risk reversal is also tilted toward caution over dollar strength. 'Against the backdrop of the strong U.S. economy, market participants also seem to be preparing for prolonged dollar strength,' said Motonari Sakai, market sales manager in the funds and foreign exchange department at Mitsubishi UFJ Trust and Banking.

More financial institutions have recently forecast that the yen will remain weaker than 160 per dollar. Goldman Sachs in the U.S. raised its one-year forecast to 165 yen after July began. Its previous forecast was 155 yen, a 10-yen revision toward a weaker yen.

The firm said downward pressure remains strong amid expansionary fiscal policy and only gradual rate hikes by the BOJ, and it sees the effect of yen-buying intervention as limited.

Since the intervention at the end of April, the yen has fallen almost in a straight line. From June onward, expectations of U.S. rate hikes later this year have strengthened dollar-buying pressure, while a draft of Japan's basic policy on economic and fiscal management and reform, compiled by the government, has also been seen as restraining BOJ rate hikes, adding to yen weakness.

'Unless Takaichi administration policies change course, it will be difficult to correct yen weakness.' The remark from a senior executive at a major life insurer captures the sense of resignation hanging over the market.

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