U.S. Treasury Secretary Scott Bessent backed a late-July joint U.S.-Japan intervention to support the yen, marking the first such coordinated action since the 1998 Asian financial crisis. The move follows a period of sustained depreciation in the yen, which ING estimates remains around 20% undervalued against the dollar.
ING’s Behavioural Equilibrium Exchange Rate model has indicated USD/JPY overvaluation exceeding 20% throughout 2026, reinforcing the case for intervention. The yen’s recent weakness has coincided with a divergence in monetary policy between Japan and major economies, with markets pricing a roughly 75% chance of a Bank of Japan rate hike in September.
Chris Turner, ING’s Global Head of Markets, noted that Bessent’s involvement—given his background in currency speculation—suggests a strategic bet on yen appreciation. However, Turner cautioned that sustained gains would require higher domestic returns, stronger economic growth, and a supportive policy path from the BOJ. The intervention’s effectiveness may hinge on these structural factors, rather than short-term market interventions alone.
ING’s base case projections place USD/JPY at 158 by the end of 2026 and 152 by the end of 2027, reflecting a gradual but incomplete correction from current levels. The bank’s outlook contrasts with the yen’s recent performance, which has weakened despite the intervention, underscoring the challenges of reversing entrenched market trends.
The intervention follows precedents set by other central banks. Sweden’s Riksbank hedged its FX reserves in June 2023, viewing the krona as undervalued, while Mexico’s Banxico unwound a $7.5 billion short USD/MXN forward position in September 2023 to signal an overvalued peso. These actions highlight the limited but targeted tools available to policymakers in managing exchange rates.
Speculative structural measures, such as adding Japanese government bonds to NISA accounts or a reallocation by Japan’s Government Pension Investment Fund toward domestic assets, could further support the yen. Such steps may be timed to coincide with the BOJ’s October 30 meeting, but remain unconfirmed and carry significant implementation risks.
