Dollar-Yen Exchange Rate Returns to 159 Yen, Concerns Over Yen Carry Trade Increase

The dollar-yen exchange rate has returned to around 159 yen following joint intervention in the foreign exchange market by the United States and Japan. Analysts suggest that it will be difficult to change the trend of yen depreciation as the yen carry trade continues. On the 3rd, the Japanese Ministry of Finance confirmed yen-buying intervention alongside the United States, and U.S. Treasury Secretary Scott Vessen noted the possibility of further joint interventions. Immediately after the intervention, the yen strengthened to 155-157 yen per dollar, but the selling pressure on the yen in the market increased again, bringing the exchange rate back to 159 yen. Reuters reported that the U.S.-Japan joint intervention served as a warning against speculative yen selling, but the pace of the Bank of Japan's policies and the interest rate differential between the U.S. and Japan remain important variables. The yen carry trade involves borrowing yen at Japan's low interest rates to invest in high-yield assets, and it tends to be maintained when the yen is weak and market volatility is low. The Bank of Japan raised its short-term policy interest rate to about 1.0% at its June monetary policy meeting, while the U.S. Federal Reserve's policy rate is set at 3.50-3.75%. Japan's holdings of U.S. Treasury securities amount to $1.1431 trillion, and a large-scale sell-off could put pressure on U.S. interest rates and dollar liquidity. Secretary Vessen's mention of expanding the FIMA Repo Facility is interpreted as a measure to reduce the pathway for Japan's yen defense leading to U.S. Treasury sell-offs. The scale of the intervention is not officially confirmed, with estimates ranging from $5 billion to $10 billion, and up to $58.97 billion.

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