The yen’s rally stalled Tuesday even as US Treasury Secretary Scott Bessent pledged continued support for Japan following a historic joint intervention.
The yen ended the New York trading session weaker by 0.4% against the dollar, snapping the Japanese currency’s best four-day rally in two years. It lingered within the day’s range even after US Treasury Secretary Scott Bessent said the US would do whatever it takes to support Japan, explaining that the yen’s weakness has raised the risk of broader depreciation of Asian currencies.
Traders are left watching for any sign the yen could renew its strength to reach the key level of 155 per dollar — a threshold strategists view as a key test for the recovery to turn into a structural shift. Japan’s April and May interventions only briefly pushed dollar-yen toward that level, reinforcing views that official action merely buys time.
Stakes are higher as Tokyo and Washington join forces to support the yen to a degree unseen in decades. Their first coordinated yen-buying operation since 1998 sparked a 5% rally from a four-decade low near 164 per dollar, with both governments signaling a readiness for further joint intervention if needed.
“This time the authorities are determined to really break 155, the key level,” said Shusuke Yamada, chief Japan FX and rates strategist at BofA Securities, in a Bloomberg TV interview. “If they fail this time to break that level, then I think the market will see the authorities have exhausted policy options.”
A sustained move below 155 could trigger a shift in market dynamics, Yamada said. Dollar demand may fade as existing buyers are absorbed, while Japanese exporters and other investors step up dollar sales once the pair breaks out of its recent trading range. “In that scenario, USD/JPY market dynamics could shift from dip-buying toward selling into rallies,” he wrote in a note.
The shift could be amplified by market positioning. Net short positions on the yen held by asset managers and leveraged funds have climbed to their highest levels since 2024, according to Commodity Futures Trading Commission data.
“There’s definitely plenty of room for the yen to appreciate,” said Noel Dixon, macro strategist at State Street, who expects the Bank of Japan to hike interest rates next month. “You’re starting to see the momentum build. I think dollar-yen could get down to 150.”
Still, many on Wall Street remain skeptical the yen can sustain its advance, arguing the dollar’s yield advantage will only strengthen if the Federal Reserve raises interest rates in the coming months.
Citigroup Inc. strategists including Daniel Tobon and Osamu Takashima expect the yen’s recent strength to prove short-lived, arguing investors are likely to resume using it as a funding currency if official intervention ceases. At the same time, the US banking group also pointed out that Tokyo has other options to defend the yen beyond selling down its Treasury portfolio.
Most of Bessent’s comments appear to be “an attempt to keep the market from selling Treasuries, rather than a strong desire to see USD/JPY lower,” said Noah Buffam, strategist at CIBC Capital Markets. “Until fiscal concerns and the slow pace of BOJ hikes is resolved, the market is likely to keep trying to buy the dip in USD/JPY, no matter the level,” he said.
Written by: John Cheng and Anya Andrianova — With assistance from Mia Glass, David Finnerty, and Naomi Tajitsu @Bloomberg
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