Macquarie: The U.S. may utilize $500 million to intervene in the yen during joint interventions, with the "signal effect" far outweighing the scale of the funds.

Gareth Berry, head of foreign exchange and interest rate strategy at Macquarie, stated that the signaling effect of the United States and Japan's joint intervention in the yen exchange rate is "far more influential than the scale of the capital flow itself." In a recent report, Berry wrote: "We estimate that U.S. authorities sold $500 million worth of euro/yen on July 31." He noted that "in terms of scale, this is merely a drop in the bucket compared to Japan's estimated $85 billion in dollar/yen sales over the two days from July 30 to 31." Given that the U.S. invested relatively little in last month's intervention, this means "they still have ample ammunition." The report further pointed out: "The U.S. Treasury and the Federal Reserve can also mobilize an additional $25.9 billion in euro-denominated reserves, so if the yen weakens again, they are fully capable of conducting more operations of a similar scale in the euro/yen market." Theoretically, if the U.S. were to directly intervene in the dollar/yen, its available ammunition would be nearly limitless. This intervention marks the largest documented two-day intervention since Japan's activities following the Fukushima disaster in October 2011. Currently, the yen is trading at approximately 159.70 against the dollar, once again approaching the closely watched 160 level, amid concerns that reaching this threshold could prompt government intervention to support the yen. The yen has retraced most of its gains following the U.S.-Japan joint intervention last month, as the U.S.-Japan interest rate differential and concerns about Japan's fiscal outlook continue to put pressure on the yen. Overnight index swaps indicate an approximately 80% probability that the Bank of Japan will raise interest rates in September. Market attention is also beginning to shift toward another more aggressive possibility: given the yen's continued weakness and high bond yields, whether the Bank of Japan will accelerate its monetary tightening pace. Changes in speculative positions also confirm this expected shift. Data from the U.S. Commodity Futures Trading Commission (CFTC) show that, for the week ending August 11, the total number of short yen contracts held by leveraged funds decreased by 6.5% to 59,526. Overall, since the collaborative efforts of both countries' authorities around the end of July to support the yen, hedge funds have reduced their short yen positions by more than half.