USD/JPY has started rising again after falling on Japanese foreign exchange intervention. The Bank of Japan is estimated to have sold more than $30bn last Thursday, with possibly smaller operations over the next two trading days.
Any confirmation of follow-up action is expected late on Thursday in Japan, when the Bank of Japan updates its current account balance data. The move is described as losing effect as market pressures reassert themselves.
Intervention Impact Appears To Be Fading
High energy prices and rising US yields are acting against yen strength. A dovish Bank of Japan stance is also weighing on the yen.
USD/JPY is expected to drift back towards 160 in the coming weeks. A different outcome is linked to a clear breakthrough in Gulf peace negotiations.
The article notes it was produced with the help of an artificial intelligence tool and reviewed by an editor.
It seems clear that the impact of any Japanese foreign exchange intervention is weakening. The recent dip in USD/JPY after authorities likely sold dollars is already being retraced, suggesting the underlying market forces remain powerful. We see the pair climbing back above 172.00, proving that fundamental pressures are overwhelming the Ministry of Finance’s efforts.
Key Drivers Still Favor Dollar Strength
The interest rate difference is a major headwind for the yen. With the US 10-year Treasury yield holding firm around 4.85% and the Bank of Japan’s policy rate at a mere 0.25%, the incentive to hold dollars over yen is enormous. This yield gap of over 4.5 percentage points continues to fuel carry trades that sell the yen.
Furthermore, high energy costs are hurting Japan’s trade balance. With WTI crude oil prices staying elevated near $95 per barrel, Japan’s import bill remains high, requiring consistent yen selling to pay for dollar-denominated energy. This creates a constant, natural downward pressure on the currency.
Looking back from today, we saw this exact pattern play out in 2024 and 2025. Despite a record ¥9.79 trillion intervention in the spring of 2024, the USD/JPY rate eventually resumed its climb as the fundamental drivers did not change. The current situation feels like a repeat of that period, where intervention only provides a temporary dip.
For derivative traders, this presents an opportunity to fade these government-induced moves. Buying short-term USD/JPY call options after a sharp, intervention-driven drop could be a sound strategy. This allows for participation in the expected rebound toward levels like 175 or higher while limiting downside risk to the premium paid.
The main risk to this view would be a sudden dovish shift from the U.S. Federal Reserve, but recent inflation data makes that seem unlikely in the near term. Therefore, we should view any yen strength as a chance to position for a return to the uptrend. Entries on dips caused by official action have historically proven profitable.
