US-Japan joint intervention may become the "watershed" for yen trends; institutions say USD/JPY is nearing its peak, with potential for a long-term rise toward 125

According to information from Zhihui Finance APP, after the rare joint intervention by the United States and Japan in the foreign exchange market, market expectations regarding the long-term outlook for the Japanese yen are beginning to change. Stephen Jen, CEO of asset management firm Eurizon SLJ Capital, believes this joint action could become a “watershed” for the yen market, with the USD/JPY exchange rate likely having peaked and a significantly lower probability of the yen falling back to the more than 40-year lows it reached previously.

Jen and the institution’s economist and portfolio manager, Joana Freire, said in a client report on Tuesday that neither the US nor Japan would easily concede to the market, so the USD/JPY “has likely already peaked.” They emphasized that the core signal sent by this intervention is that both the United States and Japan wish to push the USD/JPY lower.

This action marks the first time since 1998 that the United States and Japan have jointly bought yen in an attempt to reverse the yen’s persistent depreciation trend.

In recent times, the US interest rates remaining much higher than those in Japan have continued to attract Japanese investors to allocate funds to overseas assets, creating depreciation pressure on the yen. Last month, the USD/JPY briefly approached 164, with the yen falling to its lowest level in decades.

After the joint intervention, the yen rebounded significantly. According to data from the US Commodity Futures Trading Commission (CFTC) as of August 4, hedge funds have already reduced their short positions betting on further declines in the yen, indicating speculative capital is starting to reassess the risks of continuing to short the yen.

However, the gains brought about by the intervention have since partially retreated. Currently, the USD/JPY has risen back near 159.30, but it remains below last month’s high near 164.

US Treasury Secretary Bessent previously stated the United States remains willing to provide support to Japan, further reinforcing market expectations that the US and Japan may continue to take action.

Some on Wall Street believe that, in addition to stabilizing the yen, US involvement in the intervention may also be related to the US Treasury market. If the yen continues to depreciate sharply, Japanese authorities may need to sell US Treasuries and other dollar assets they hold to raise intervention funds, which could increase the supply pressure on the US Treasury market and further push up US long-term interest rates.

Therefore, as the US itself faces high Treasury yields and financing cost pressures, preventing an uncontrolled depreciation of the yen is also in line with US interests in stabilizing financial markets.

Eurizon is more optimistic about the medium- and long-term outlook for the yen. The firm expects the yen may eventually rise to around 125 yen per 1 US dollar, although it did not provide a specific timetable for reaching this target.

If it rises from its current level of about 159.30 to 125, that means the yen would need to appreciate against the dollar by more than 20%. This also shows that the institution does not view the US-Japan intervention as a purely short-term market operation, but rather as a sign of a deeper shift in the exchange rate policy environment.

Jen and Freire stated that the market has long needed to readjust expectations for the USD/JPY trend. In their view, the most important takeaway from this joint intervention is that both the US and Japan have clearly shown their determination to push the USD/JPY lower and prevent further sharp depreciation of the yen.

However, judging from recent movements, the intervention has not fully reversed the depreciation pressure on the yen. The USD/JPY returning to around 159 also means that the interest rate differential, capital flows, and market expectations of US and Japanese monetary policies will continue to influence the exchange rate. Going forward, the market will focus on whether the US and Japan intervene again and whether changes in the two countries’ monetary policies can further narrow the interest rate gap fundamentally.