Yen recovery remains sluggish near 158 after coordinated intervention

2026-08-06

Fast money keeps selling yen

After joint intervention by Japan and the United States, the yen briefly surged to the 155 yen level before settling back to around 158 yen per dollar. Market participants say the underlying pressure to sell the yen has not disappeared despite the buying intervention.

David Aspell, chief investment officer at Mount Lucas, runs a $1.5 billion CTA strategy that follows market trends and a $500 million global macro strategy that trades at his discretion. Both invest across multiple asset classes, including foreign exchange.

According to Aspell, the macro fund had been long yen for about a month in anticipation of intervention. It took profits during the yen's post-intervention rise and cut the position to about half its size. He is now considering shifting to trades that would benefit from yen weakness, expecting the currency to drift lower toward pre-intervention levels.

He said intervention is intended not only to defend a specific level, but also to lift volatility and curb carry trades that sell the yen. Still, he said sustainable yen strength would be difficult to achieve through intervention alone because US growth and neutral interest rates remain higher than Japan's and the wide interest-rate gap between the two countries has not changed. In its CTA strategy, the firm has been short yen for the past five years and has not yet seen a signal to turn bullish on the currency.

Building yen shorts is getting harder

Lorenzo Di Mattia, chief investment officer at Sibylla Capital, said the firm had no yen position in its funds and described the latest coordinated intervention by Japan and the United States as a game changer. He said coordinated intervention carries weight because of its scale and the risk of further action, and that the combination of bearish yen fundamentals and strong intervention fears has made it harder to bet on a one-way move in the currency.

At the same time, he said the broader backdrop for the yen has not changed and it is still difficult to be bullish. He argued that the main drivers of the yen's weakness are not speculative selling, but Japan's fiscal expansion stance and the sharp rise in Japanese government bond yields, especially at the super-long end. Higher rates are swelling government debt-servicing costs and intensifying concern about a widening fiscal deficit.

Repatriation of Japanese assets also offers support

Chris Jones, head of solutions at Graham Capital, sees room for yen appreciation over the longer term. He said the yen is about 50% undervalued against the dollar on a purchasing power parity basis, and that the effects of currency intervention tend to be temporary. Even so, he said the joint intervention by Japan and the United States could ease market skepticism and encourage more investors to turn bullish on the yen.

On the monetary policy side, the Federal Reserve has held off on further rate hikes, while expectations are building for additional rate increases by the Bank of Japan. Expectations that the US-Japan interest-rate gap will narrow could support the yen. Japan runs a current-account surplus, but much of that comes from investment income on overseas assets. If domestic interest rates rise or global risk aversion intensifies, the repatriation of overseas assets could increase demand for yen buying and lead to medium- to long-term yen strength.

Enjoyed this article? Share it with your network!