The yen has fallen below 160 again, and Washington refuses to signal further intervention! Yen trading focus shifts to the central bank meeting in September.

On July 31, the United States and Japan jointly intervened to bolster the yen, resulting in a brief rebound from approximately 163 to around 155. However, the gains were soon retraced, and last Friday, the yen accelerated its depreciation, breaking past the 160 yen to 1 dollar mark. U.S. Treasury Secretary Scott Bessenet stated in an interview that the yen's exchange rate movements are fairly controlled and not characterized by disorderly fluctuations, essentially endorsing the market's operational order rather than taking a stance on the yen's strength. This implies that the 160 threshold is not a fixed red line for automatic intervention; instead, the policy response function prioritizes the speed of depreciation, unilateral speculation, and its contagion risk to Japanese government bonds and global financial markets. In the short term, the urgency for another joint intervention by the U.S. and Japan has diminished. The real defense line for the yen will shift to the Bank of Japan's monetary policy meeting on September 17-18 and subsequent interest rate hike pace. This means that following a cooling of expectations for short-term intervention, the September meeting of the Bank of Japans monetary policy and the future possibility of shifting to quarterly interest rate hikes will dominate the yen's repricing. Major Wall Street financial giants are united in their belief regarding the yen's exchange rate: Intervention can only buy time; interest rate differentials can change the trend. In other words, a sustained appreciation of the yen requires the Bank of Japan to accelerate normalization, a decline in Federal Reserve interest rates/Treasury yields, or a return of Japanese funds to domestic assets; however, there is no consensus on specific levels. Bank of America forecasts a year-end decline of the dollar to 149 yen, while Citigroup predicts a drop to 155. Morgan Stanley believes the current fair value remains between 165 and 167, but will gradually appreciate to 155 as the U.S. interest rate environment changes. Goldman Sachs previously set a target of 165 for the next 12 months, while JPMorgan forecasts a value of 164 for the fourth quarter. Bessenet described the yen's trajectory as fairly controlled and not characterized by disorderly fluctuations. U.S. Treasury Secretary Scott Bessenet stated late Sunday that the recent movements of the yen's exchange rate are well controlled, suggesting that the yen's recent decline is not viewed as the kind of disorderly fluctuation that prompted the rare joint intervention by Japan and the U.S. last month. The yen depreciated past the 160 yen to 1 dollar threshold on Friday; this benchmark is widely regarded by investors as increasing the likelihood of intervention, leading the market to closely monitor whether the U.S. and Japan will act again to support the yen. In a media interview Sunday, Bessenet also mentioned that when asked whether the Bank of Japan should consider consecutive rate hikes to curb the yen's decline, he expects that with Prime Minister Fumio Kishidas support, Bank of Japan Governor Kazuo Ueda will do the right thing with monetary policy. I wont tell them what to do, Bessenet remarked when asked if the Bank of Japan should raise rates more aggressively. What I will say is that I genuinely believe we may have reached the end of Abenomics; Abenomics was a policy program aimed at promoting re-inflation in the Japanese economy. Abenomics was introduced in 2013 during the tenure of the late Prime Minister Shinzo Abe, aiming to lift Japan out of long-term deflation through a combination of massive monetary stimulus at zero or even negative interest rates, hefty fiscal spending, and measures to enhance Japan's growth potential. Bessenet stated that he plans to meet with Ueda during the two-day G20 finance officials' meeting, which will commence Monday in Asheville, North Carolina. From a shift of Abenomics to Kishida Economics, the September interest rate hike by the Bank of Japan is set to become the true defense line for the yen's exchange rate? I have known him for 15 years. He is an outstanding economist. I think people underestimate his sensitivity to the market, Bessenet remarked when discussing Bank of Japan Governor Kazuo Ueda. When asked whether the yen is still experiencing disorderly fluctuations, Bessenet replied, Oh no. I think the situation is being controlled quite well. Japan and the United States implemented a rare joint purchase of yen intervention on July 31, demonstrating both countries' determination to prevent the yen and Japanese government bonds from being sold off and to avoid the risk of spillover to global markets. Bessenet's calm assessment of the yen contrasts with his comments a month prior when he acknowledged the Washington-Tokyo joint intervention, describing the action as a response to disorderly fluctuations in the exchange rate. The weakness of the yen has become a thorny issue for Japanese policymakers as it raises import prices and overall inflation. This is partly attributed to the slow pace of interest rate hikes by the Bank of Japan, which has maintained a high interest rate differential with the U.S. Bessenet's remarks about the Bank of Japan come as it prepares for a much-anticipated monetary policy meeting on September 17 and 18. Sources have previously told various media that the Bank of Japan may raise rates as early as September and is considering a more aggressive pace of rate hikes than its current rate of approximately two hikes per year. Bessenet has repeatedly called for rate hikes from the Bank of Japan, which is one of the factors leading the market to almost fully price in the likelihood of a rate hike in September; if such a hike occurs, it would follow the rate increase in June. Some analysts suggest that if the Bank of Japan raises rates in September rather than October, it could strengthen market bets on a shift to quarterly rate hikes rather than maintaining the current pace of about two hikes per year. Ueda stated last month that the Bank of Japan will focus on the rising inflation risks; if financial conditions are deemed excessively loose, accelerating the pace of rate hikes cannot be ruled out. However, this hawkish communication from the Bank of Japan has failed to build a sustainable effective bottom for the yen. Shareholder-friendly policies are now facing high pressure from the bond market: fiscal expansion and monetary tightening are colliding head-on. Bessenet defined the current trend as controlled, meaning that any future intervention will depend on the degree of market disorder rather than a singular price point like 160. However, foreign exchange intervention can only delay depreciation, and the core variable determining the yen's trend is whether interest rates can be raised more quickly to narrow the Japan-U.S. interest rate gap. Later, in a media interview on Sunday, Bessenet stated that Japan has overcome deflation and has shifted to Kishida Economics under Prime Minister Fumio Kishida's leadership, allowing Japan to now enjoy the benefits of past economic revitalization policies. Bessenet stated that Kishida Economics is more friendly to shareholders, particularly with significant deregulation in the labor sector, implying reduced government intervention. I believe they should wait and enjoy the success achieved by Abenomics and let its effects continue, Bessenet remarked regarding his recommendations for Japan's fiscal policy. Fumio Kishida, known for supporting Abenomics, has proposed an ambitious spending plan aimed at promoting investment in growth areas and alleviating the impact of rising living costs on households. Critics argue that this expansionary fiscal policy contradicts the Bank of Japan's efforts to curb inflation through tightening monetary policy. As investors grow increasingly uneasy about Japan's massive debt load, Kishida's extensive expenditure plan has also driven the yield on Japans benchmark 10-year government bonds to rise earlier this month to 2.945%, the highest in 30 years.