Commerzbank’s Thu Lan Nguyen argues that recent interventions by Japanese authorities and the US Treasury have largely lost impact, with the Japanese Yen giving back gains against the Dollar and US yields returning to prior levels. She highlights unclear policy objectives and credibility issues, noting that fiscal concerns remain a headwind for the US Dollar and that markets still view USD/JPY 160 as a key line.

Policy signals and fiscal headwinds

“Both the interventions by the Japanese authorities and those by the US Treasury have more or less fizzled out. The Japanese yen has already surrendered part of the gains it made against the US dollar following the historic intervention at the end of July, all within just a few weeks. Likewise, US Treasury yields have returned to the levels seen before the Treasury announced increased bond buybacks.”

“Fiscal concerns therefore remain a headwind for the US dollar.”

“Interventions do not work solely through the physical purchase or sale of assets. Equally, if not more, important is their signaling effect: policymakers use them to indicate a change in policy stance or hint at future policy measures.”

“Nevertheless, the 160 level is likely to be viewed as an implicit line in the sand for the time being, particularly because the Bank of Japan adopted a markedly hawkish tone after that level was recently reached, as my colleague noted yesterday.”

“As long as governments fail to credibly address market concerns about the trajectory of public debt, investors are likely to continue demanding a risk premium on both the yen and the US dollar.”