The joint intervention by the U.S. and Japan may become a "watershed" for the yen's trend. Institutions suggest that the USD/JPY is nearing its peak, with potential for a long-term rise towards 125.

After the rare joint intervention in the foreign exchange market by the United States and Japan, market expectations for the long-term trend of the Japanese yen are changing. Stephen Jen, CEO of the asset management firm Eurizon SLJ Capital, believes that this joint action could become a "turning point" for the yen market, with the dollar-yen exchange rate likely having peaked, and the possibility of the yen falling back to its previous 40-year low has significantly decreased. In a report to clients on Tuesday, Jen and the firms economist and portfolio manager Joana Freire stated that neither the U.S. nor Japan would easily concede to the market, hence the dollar-yen exchange rate "has likely peaked." They emphasized that the core signal conveyed by this intervention is that both the U.S. and Japan want to push the dollar-yen rate lower. This action marks the first joint purchase of yen by the U.S. and Japan since 1998, attempting to reverse the trend of the yen's continued depreciation. In recent times, due to U.S. interest rates being persistently higher than Japan's, the significant interest rate differential between the two nations has continued to attract Japanese investors to allocate funds into overseas assets, putting downward pressure on the yen. Last month, the dollar-yen rate nearly approached 164, with the yen hitting lows not seen in decades. Following the joint intervention, the yen saw a notable rebound. Data from the U.S. Commodity Futures Trading Commission (CFTC) as of August 4 indicated that hedge funds have reduced their short positions betting on further declines in the yen, showing that speculative funds are beginning to reassess the risks of continuing to short the yen. However, the gains brought by the intervention were later partly reversed, and the dollar-yen rate has now risen back to around 159.30, still below last month's high near 164. U.S. Treasury Secretary Janet Yellen previously stated that the U.S. remains willing to provide support to Japan, further strengthening market expectations that the U.S. and Japan may take further action. Some on Wall Street believe that U.S. involvement in the intervention is not just to stabilize the yen, but may also relate to the U.S. Treasury market. If the yen continues to depreciate significantly, Japanese authorities may need to raise intervention funds by selling U.S. Treasuries and other dollar assets, which could increase supply pressures in the U.S. bond market and further raise long-term U.S. interest rates. Therefore, against the backdrop of the U.S. facing high Treasury yields and financing cost pressures, avoiding an uncontrolled depreciation of the yen is also in the interest of stabilizing the financial market. Eurizon holds a more optimistic view on the medium to long-term outlook for the yen. The firm predicts that the yen may ultimately rise to around 125 yen per dollar, although it did not provide a specific timeline for achieving this goal. If it were to rise from the current level of approximately 159.30 to 125, it would mean the yen needs to appreciate over 20% against the dollar. This also indicates that the firm believes this joint U.S.-Japan intervention is not merely a short-term market operation but may signal a deeper change in exchange rate policy conditions. Jen and Freire stated that the market has long needed to readjust its expectations for the dollar-yen trend. In their view, the most important message conveyed by this joint intervention is that both the U.S. and Japan have clearly demonstrated their determination to drive the dollar-yen rate down and prevent the yen from depreciating further. However, recent trends show that the intervention has not completely reversed the depreciation pressure on the yen. The dollar-yen rate returning to around 159 also means that interest rate differentials, capital flows, and market expectations for the monetary policies of the U.S. and Japan will continue to influence the exchange rate. The market's future focus will be on whether the U.S. and Japan will intervene again, and whether changes in the monetary policies of the two countries can fundamentally further narrow the interest rate differential.