The intervention effect has dissipated, and the yen has once again hit rock bottom against the G-10 currencies. Will the "liquidity vacuum" force the Japanese authorities to pull the trigger a second time?

As the effects of recent intervention measures gradually fade, the Japanese yen has performed the weakest among the G-10 currencies this month, prompting the market to remain highly vigilant regarding the possibility of further actions by Japanese authorities. Since August, the yen has depreciated by approximately 0.5% against the US dollar, giving back some of the gains made in July, when it had risen by 3.2%. Last Friday, weaker-than-expected US non-farm payroll data temporarily suppressed the dollar, allowing the yen to briefly bounce back, but it soon resumed its downward trend. With the Japanese market closed for a holiday on Tuesday, market participants are worried that thinning liquidity could create conditions for a new round of intervention. Despite this, even with the historic joint intervention by Japan and the US, the weak trend of the yen is likely to continue, primarily due to major bearish factors such as ongoing concerns about Japan potentially increasing fiscal spending. A team of strategists at Nomura Securities, including Yjir Goto, noted in a report: Japan is currently in the Obon holiday, which may limit market participation, and the domestic economic data calendar is relatively sparse. The market will continue to focus on the intervention stance of the Japanese and US authorities, and investors will closely watch officials' statements. Earlier this month, the yen briefly fell to around 164 yen per dollar, its lowest level in forty years, after which Japan and the US implemented their first joint yen-buying intervention since 1998. This action temporarily pushed the yen up to around 155 but the rally gradually faded, and it has now fallen back below the 158 mark. This reversal highlights that, with the core factors driving the yen's weakness remaining unchanged, relying solely on intervention measures is insufficient to reverse the overall downward trend of the yen. Although both Japan and the US have warned that they are ready to act again if necessary, factors such as the significant interest rate differential with the US, market concerns over Japan's fiscal outlook, and geopolitical uncertainties continue to weigh heavily on the yen. A team of strategists at Goldman Sachs, including Kamakshi U. Trivedi, stated in a report: We believe the markets reaction to the intervention action has been relatively muted, reflecting deeper fundamental reasons behind the yen's weakness. They anticipate, Unless there is a shift in the global macro environment or a policy surprise, the downward pressure on the yen is expected to resurface over time. Meanwhile, the Bank of Japan warned of heightened inflation risks in the summary of opinions from its July meeting, with one policy member mentioning the possibility of accelerating the pace of interest rate hikes. Overnight index swap data indicates that the market sees about a 66% chance of an interest rate hike in September, while an action in October has been almost fully priced in. According to an analysis of central bank accounts, Japanese authorities may have utilized about $34 billion to intervene in the foreign exchange market to support the yen on July 31. The day before, authorities are estimated to have spent around $53 billion, which, if confirmed, would be the largest single-day intervention in history.