USD/JPY steadied on Monday after a sharp drop at the weekly open, fuelling talk of renewed official action following last week’s coordinated US-Japan intervention. The pair traded near 156.80, down 0.35% on the day, after touching 155.23, its lowest level since May 6. Japan’s Ministry of Finance confirmed that Tokyo and Washington jointly bought Yen on Friday to counter excessive volatility and disorderly moves, coming a day after Japan acted alone. Reuters, citing Bank of Japan money market data, estimated spending of about $58.97 billion on the first operation, followed by a further $36.58 billion during the joint action with the US.
Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent said further joint intervention remains an option. Structural factors cited as weighing on the Yen include Japan’s loose financial conditions, expansionary fiscal policy and relatively low interest rates. At the same time, the US Dollar showed signs of stabilisation, with the Dollar Index (DXY) around 99.83 after rebounding from 99.42, its lowest since June 15. Rabobank referenced CFTC positioning, with USD net longs at their highest since September 2024 ahead of the July FOMC meeting, while JPY net shorts reached their highest levels since 2024 before the intervention.
Impact of Coordinated Intervention and Market Reaction
We are seeing unprecedented joint action from Tokyo and Washington, with an estimated $95 billion deployed last week to prop up the Yen. This massive liquidity injection has caught over-leveraged Yen short sellers off guard and dragged the USD/JPY pair down to the 156.80 range. In the coming weeks, we believe derivative traders must prepare for elevated volatility as the market tests the resolve of these central banks.
Looking back at the historical 2024 interventions, where Japan spent a record 9.8 trillion Yen ($62 billion) in April and May, we know that unilateral action often only buys temporary relief. However, this new coordinated effort with the US Treasury presents a much higher risk for those betting against the Yen. We advise shifting away from simple directional bets and instead utilizing option strategies like long straddles to capture sudden, sharp price swings.
Strategy Considerations Amid Policy and Market Divergence
With US Dollar net longs easing and doubts rising over the Federal Reserve’s inflation-fighting credibility, the greenback’s premium is shrinking. Traders holding USD/JPY call options should consider hedging their positions with short-dated put options to protect against another sudden round of joint intervention. We believe buying protective puts at the 154.00 strike price offers a cost-effective way to guard against further policy-driven spikes.
Despite the heavy-handed official action, Japan’s loose financial conditions and low interest rates still fundamentally weigh on the Yen. This divergence between official intervention and economic reality means any sharp Yen rallies will likely face heavy selling pressure from macro funds over the medium term. We suggest using any sudden drops in USD/JPY below the 155.00 level to build long-term positions through barrier options, keeping knock-out levels set safely below the recent lows.
