The most intense currency battle in decades. Will a historic intervention save the Japanese yen, or will it climb even higher? And how should you trade USD/JPY now?

The Largest Defense of the Yen in Many Years

In recent years, Japan has repeatedly attempted to halt the decline of its currency. The largest wave of interventions came at the turn of April and May of this year, when the Japanese Ministry of Finance, together with the Bank of Japan, spent a record 5.48 trillion yen—approximately 35 billion dollars—over the course of several days. In total, Tokyo spent roughly 73 billion dollars defending its currency during several interventions in May. Even that, however, was not enough. The USD/JPY exchange rate once again approached historic highs, and the yen weakened to 163 yen per dollar—its weakest level since 1986.

It was then that an extraordinary step was taken. The United States decided to actively assist Japan, and together they carried out a coordinated intervention in the foreign exchange market. The U.S. Treasury sold euros from its reserves and used the proceeds to buy Japanese yen. Such coordinated action is extremely rare. The last time it occurred was in 2011 following the devastating earthquake in Japan, and before that during the Asian financial crisis in 1998. The result was a rapid strengthening of the yen back below the 160 mark and subsequently to a level around 155 USD/JPY. However, the markets immediately began to debate whether this marked the start of a new trend or merely a short-term correction.
 

History isn’t very encouraging for yen bulls

Looking back at history, we don’t find much reason for optimism. For example, Japan intervened in September and October 2022, when it bought its own currency for the first time since 1998. This was followed in July 2024 by another massive intervention worth nearly $37 billion. Then, this year, record interventions took place in April and May. In all cases, the effect was similar. The exchange rate fell sharply for several days or weeks, volatility subsided, but the long-term trend continued. After some time, the market always returned to fundamentals, and the yen began to weaken again.

In fact, U.S. Treasury Secretary Scott Bessent acknowledged this as well. According to him, intervention can send an important signal to the markets and limit extreme fluctuations in the short term, but the currency’s actual direction is determined by economic policy and economic fundamentals. That is precisely why most analysts point out that simply buying the yen is not enough. Unless the conditions that motivate investors to buy the U.S. dollar change, the current intervention will merely delay further weakening of the Japanese currency.

Why is the yen still losing ground?

The main problem remains the huge difference in interest rates. While the Bank of Japan’s benchmark rate is only 1%, the U.S. Federal Reserve is keeping rates at 3.75%. Moreover, the market still anticipates the possibility of another 25-basis-point hike as early as the September meeting. Such a significant interest rate differential creates ideal conditions for the continuation of the so-called carry trade. Investors borrow Japanese yen cheaply and then invest in higher-yielding U.S. assets.

If the JPY weakens further, they immediately generate a double profit—capital gains and positive swap points. This mechanism creates long-term downward pressure on the Japanese currency. Unless the Bank of Japan is willing to raise rates more significantly, while the Fed remains hawkish, the fundamental picture will remain virtually unchanged. And that is precisely the main reason why most previous interventions have failed in the long run.

Why does the whole world care about a weak yen?

It’s not just currency traders who are watching the Japanese yen’s performance. Its significance is much broader. Japan holds nearly three trillion dollars in foreign assets. U.S. Treasury bonds alone account for more than 1.1 trillion dollars, making Japan the United States’ largest foreign creditor. If Tokyo needed to finance further massive interventions, it could sell some of these bonds. That would increase their supply on the market, drive down their price, and further raise yields on U.S. bonds. This is an extremely sensitive issue right now. The yield on 30-year U.S. Treasury bonds has already reached its highest level since 2007, and rising borrowing costs pose an ever-greater problem for the U.S. government, whose debt exceeds $39 trillion.
 

Higher yields also increase the discount rates used in stock valuations. Technology companies, whose valuations are based on expectations of future earnings, are particularly sensitive to this. Further rises in long-term yields could thus put increased pressure on U.S. stock indices.

However, the weak yen has another effect. The depreciation of the Japanese currency often puts pressure on other Asian currencies as well, such as the South Korean won or the Chinese yuan. If those currencies were to weaken as well, it could lead to a broader round of currency interventions and increased nervousness across all of Asia. It was precisely this scenario that was one of the main reasons why Washington decided to intervene alongside Tokyo. According to the U.S. Department of the Treasury, a stable yen is important not only for the United States but for the entire Asia-Pacific region.

Will Geopolitics Be the Deciding Factor?

Although the interest rate differential clearly favors the dollar, there is one factor that could significantly change the situation—and that is geopolitics. The U.S. dollar has benefited significantly this year from the escalation of the conflict in the Middle East. During periods of heightened uncertainty, investors traditionally shift capital into U.S. assets, and the dollar acts as a safe haven. Moreover, higher oil prices are fueling inflation expectations and increasing the likelihood that the Fed will keep interest rates at higher levels for longer or raise them further, as is already expected in September. The Fed’s September meeting could be the key to whether the JPY manages to break out of its weakening trend.

However, if tensions in the Middle East were to begin to subside and oil prices stabilized below current levels, the dollar could lose some of its safe-haven premium. The likelihood of further interest rate hikes in the U.S. would also decrease. This would create room for the yen to strengthen naturally, without the need for further massive interventions. Conversely, a continuing escalation of the conflict, oil hovering around $90 per barrel, and persistent inflationary pressures would likely continue to support the U.S. currency. In such an environment, even a record-breaking coordinated intervention might not be enough to reverse the long-term trend.

What does technical analysis say?

From a long-term perspective, it is too early to speak of a confirmed trend reversal. Since mid-2025, the pair has been moving within a clearly defined upward trend channel that has held during virtually all major corrections. Although the current decline has broken through the lower boundary of this channel, it has done so only on an intraday basis so far. If the daily or weekly candle manages to return above the channel’s lower line, the entire move could turn out to be merely a false breakout caused by extraordinary intervention by central banks.

For bulls, it is now crucial to hold the 156–157 JPY per dollar range. This is where the first significant technical support level lies, corresponding to the lower boundary of the current trend channel. If buyers manage to defend this area, a return to 160—and subsequently back to this year’s highs around 163–164—cannot be ruled out. Moreover, such a scenario would be consistent with historical experience, where most Japanese interventions have led only to a short-term correction, after which the market returned to its original direction.

Conversely, a close of several daily candles below the 156 level would be the first truly negative signal for the long-term bullish trend. In such a case, it would open the door to a deeper correction toward 154, and subsequently to the 152–153 range, where previous significant swing lows are located. Only a break below these levels would indicate that the intervention has truly altered the long-term market structure.

However, this time the technical picture needs to be evaluated alongside the fundamentals. The intervention itself is unlikely to change the long-term trend as long as a significant interest rate differential between the United States and Japan persists. U.S. rates remain at 3.75%, while the Bank of Japan is keeping its rate at just 1%. If the Fed does indeed raise rates by another 25 basis points in September, the dollar will continue to enjoy a significant yield advantage, which supports the continuation of carry trade strategies.

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What to watch in the coming weeks?

The current intervention is undoubtedly one of the most significant interventions in the foreign exchange market in recent decades. The United States’ involvement clearly shows that the weak yen is no longer just a Japanese problem but has become a matter of global financial stability. Nevertheless, history urges caution. Currency interventions can shift market sentiment, stem panic, and curb extreme volatility, but they rarely reverse a long-term trend on their own. That is determined primarily by interest rates, economic fundamentals, and the geopolitical environment.

That is precisely why the USD/JPY currency pair will be one of the most important indicators for investors and one of the most interesting pairs for forex traders in the coming months. It will provide insight not only into the health of the Japanese economy but also into the future performance of U.S. bonds, tech stocks, global liquidity, and investors’ willingness to take on risk.

If the yen manages to hold onto its gains without further massive interventions by central banks, this could be the first sign of a shift in the long-term trend. However, if the strength of the U.S. dollar—backed by high interest rates and geopolitical uncertainty—prevails once again, the current record-breaking intervention will likely be just another episode in a battle that the market will ultimately win once more.