Intervening 30 times with the fire power in hand but only seeking for a "one-hit kill", the dilemma of the Japanese yen cannot be solved by simply throwing money at it.

Facing the continuous depreciation pressure on the yen, the Japanese authorities were forced to take measures to launch a currency intervention operation last week. However, this "yen defense battle" is facing a severe test under the huge interest rate differentials between the US and Japan, rising energy costs due to geopolitical conflicts, and complex international rules. Intervention scale and strategy: wield heavy money, strike accurately It is estimated that the Japanese authorities may have invested about 5 trillion yen (about 350 billion US dollars) last Thursday to support the yen. This action occurred at a critical moment when the yen exchange rate fell below the 160 level, and this intervention temporarily pushed the US dollar against the yen to its largest weekly decline since February. Yuriko Tanaka, an economist at Goldman Sachs, pointed out in a report that the current market volatility is relatively mild, and the fact that the Japanese authorities chose to intervene in this background indicates that this exchange rate level has been considered by policy makers as a "bottom line" that should not be crossed. Tanaka also believes that Japan has ample "firepower" and theoretically could undertake similar scale intervention actions about 30 more times. However, the Japanese Ministry of Finance, which currently holds foreign exchange reserves of about 189 trillion Indonesian rupiah, obviously prefers to "calculate carefully." Tanaka pointed out that due to limited intervention resources, it is expected that the authorities will preserve their strength and only take action at the "most effective time" when the yen sharply depreciates and market volatility is high. This strategy was also reflected in this intervention, as the Japanese authorities chose to strike during thin holiday trading hours, magnifying market impact and hitting speculators holding large short yen positions. Brief rebound, difficult to reverse trend Despite Japan's "blitz" combination, analysts are generally cautious about the sustainability of the yen's rise. Barclays Bank explicitly warned that the yen's rebound this time is likely to be temporary. Historical data shows that in previous intervention cases, the yen exchange rate often retreated within about two days after intervention and resumed its decline. Barclays warned that if the US dollar quickly rebounds to near 160 yen, Japan may intervene again, pointing out that previous multi-day intervention actions were not triggered by the exchange rate returning to its original point, but because the rebound was too rapid. Data shows that after last week's intervention, the US dollar against the yen temporarily rose to near 158 and is currently hovering around 156. Options market data shows that traders still believe that there is about a 52% probability that the yen will fall back to the 160 level by the end of June. Looking at the medium to long term, Barclays believes that the pressure for yen depreciation may continue to exist, citing the bank's description of a "fragile forex supply-demand structure" and rising "inflation risk premiums." Barclays' fair value estimate for the US dollar against the yen is 148, meaning that the current exchange rate level is significantly overvalued. However, the bank also acknowledges that there may still be a certain degree of risk premium in the market relative to this valuation. Addressing symptoms, not root causes Ultimately, the root cause of the yen's weakness lies in deep-seated structural issues. On the one hand, the huge interest rate differential between the US and Japan is unlikely to narrow in the short term, as market expectations for a Federal Reserve rate cut have significantly faded; on the other hand, due to geopolitical conflicts such as the Iran war pushing up oil prices, the Japanese economy, which heavily relies on energy imports, faces the nightmare of worsening imported inflation. Barclays also expressed longer-term concerns about Japan's fiscal path. The bank pointed out that Japan's commitments to increasing defense spending and the policy orientation of Bank of Japan board members nominated by Prime Minister Taro Aso are bringing additional variables. Barclays warns that these factors may lead to a weakening yen, an increase in Japanese government bond term premiums, and a rise in inflation expectations in the coming period. Rinto Maruyama, FX and interest rate strategist at Daiwa Securities, pointed out that intervention measures themselves are of limited effectiveness. Although the market currently sees 158 as the authorities' new "bottom line," the yen will likely slide again due to structural issues even after a brief rebound. Damien Loh, Chief Investment Officer of Ericsenz Capital, even bluntly stated, "The yen will only continue to weaken unless the Bank of Japan raises interest rates in line with inflation." Game of "defenses" and "rules" The intervention operation has also sparked a public opinion storm about the rules of the International Monetary Fund (IMF). According to IMF guidelines, an economy implementing a "floating exchange rate" should not intervene in foreign exchange markets more than three times within six months. Japanese Ministry of Finance officials have explained that consecutive three-day intervention actions will be counted as a single intervention. By this standard, Japan could conduct up to two more rounds of intervention by November. However, Japan's top foreign exchange official, Junichiro Mimura, immediately clarified that the IMF's categorization does not limit the frequency of interventions by authorities. Market participants also doubt the actual constraint of such rules, with Rodrigo Catril, a strategist from the National Australia Bank, stating that history shows that the IMF has difficulty enforcing exchange rate rules. He added that unless there are substantial changes in factors such as Japan's ultra-loose fiscal policy, "future interventions should still be expected." Rather than playing word games about the rules, the focus of the market lies on the upcoming visit of US Treasury Secretary Benson to Japan next week. According to informed sources, Benson is set to begin a three-day visit to Japan starting on Monday, during which he will meet with Prime Minister Taro Aso, Finance Minister Koichiro Gemba, and Bank of Japan Governor Haruhiko Kuroda. Junichiro Mimura refused to comment on Benson's visit to Japan, but stated that Japan communicates with the United States daily and emphasized that the US "fully understands our thinking and actions." He told reporters, "Our focus has always been consistent and comprehensive, and we remain vigilant against speculative activities in the foreign exchange market." Currently, there is high speculation about whether the US will pressure Japan on the yen exchange rate and the Bank of Japan's monetary policy. Previously, Benson stated his support for a faster pace of rate hikes. Shota Ryu, FX strategist at Mitsubishi UFJ Morgan Stanley Securities, said, "The market's biggest focus is whether the US will join Japan's intervention action. Currently, the possibility of Japan intervening alone is higher, and its effectiveness is far less than that of joint action." He also pointed out, "The US may believe that the yen's weakness is not due to speculation, but rather the Bank of Japan's slow pace of rate hikes. Therefore, Benson may call on the Bank of Japan to raise rates in June in an informal setting."