The yen strengthened modestly this week following coordinated currency intervention by the U.S. and Japan, raising speculation over whether the action marks a turning point for the currency after years of depreciation. On August 20, the USD/JPY exchange rate closed at 158.98, down 0.07 points or 0.04%, as markets assessed the implications of the late-July intervention—the first joint yen-buying effort since the Asian financial crisis of 1998.
ING analysts estimate the yen remains roughly 20% undervalued against the dollar, a gap that has persisted throughout 2026 according to their fair-value model. The Behavioural Equilibrium Exchange Rate framework, which incorporates terms of trade, productivity, current account balances, and government spending, has similarly flagged overvaluation above 20% for the USD/JPY pair this year. Francesco Pesole, ING’s FX strategist, noted that the persistence of these imbalances underscores structural pressures weighing on the yen.
Markets are now pricing a 75% probability of a Bank of Japan (BOJ) rate hike at the September policy meeting, a move that could further support the currency. The intervention coincided with Tokyo’s announcement of a new growth strategy, which includes a public-private investment framework targeting 370 trillion yen—equivalent to $2.3 trillion—by 2040. The plan aims to bolster domestic asset allocation, including potential reallocation by Japan’s Government Pension Investment Fund, though Chris Turner, ING’s global head of markets, described such a shift as speculative and contingent on broader policy shifts.
The yen’s recent resilience also reflects broader trends in overseas investment income retention. Bank of Korea research indicates that 46% of Japan’s overseas investment income remains reinvested offshore, compared with 40% in South Korea, 28% in Germany, and 18% in Taiwan. This dynamic has historically contributed to structural demand for foreign assets, limiting the currency’s appreciation despite intervention efforts.
Historical precedents offer mixed signals. Sweden’s Riksbank hedged its FX reserves in June 2023 when it deemed the krona undervalued, while Mexico’s Banxico in September 2023 unwound a $7.5 billion short USD/MXN forward position to counter perceived peso strength. Turner suggested that U.S. Treasury Secretary Scott Bessent’s involvement in the yen intervention—given his background in speculative currency bets—may signal a more assertive U.S. stance on exchange-rate stability, though the durability of any shift remains uncertain.
