Even with ¥15 trillion in FX intervention, dollar-yen fell from ¥160 to ¥155 and then to yen strength below ¥153: Has the market tide turned? [Impact on stocks and bonds]

Dollar-yen temporarily fell to the ¥152 range, its strongest level in seven months, while long-term Japanese government bond yields declined from the 3% range to the 2.8% range. As the yen strengthened, its impact on markets, including Japanese equities, was observed, while commentators continued to point to limits to the effectiveness of intervention.

Alongside coordinated US-Japan intervention aimed at correcting yen weakness, progress on Bank of Japan rate hikes is expected to influence the direction of the yen. While the United States is urging the Bank of Japan to raise rates, some observers said the yen’s appreciation could gain momentum depending on the outlook for US rate hikes. The relationship between major US and Japanese interest rates and dollar-yen, as shown in the charts, is also referenced.

A narrowing US-Japan interest-rate differential and the course of US monetary policy are said to affect a shift in the yen-appreciation narrative. Some observers believe that even if the Bank of Japan proceeds with rate hikes this year, delays in its response to inflation will remain. The outlook for the yen is influenced not only by speculative investors but also by the real economy and policy developments, the analysis explained.

In the government bond market, movements in long-term yields were intertwined with global factors, and yields were observed trading around the 2% level. Progress in Japan’s emergence from deflation, including expanding demand for AI investment, has affected interest-rate trends, and some observers said periods of yen weakness and strength form part of an adjustment process. There were also comments that the impact on the equity market could become a negative factor during a yen-appreciation shock.