BofA sees yen jumping 6% after US-Japan intervention

The United States and Japan last week carried out a rare coordinated intervention in currency markets to arrest the yen's slide to 40-year lows, a move that has reshaped expectations across Asian foreign exchange markets and drawn in South Korea as an indirect beneficiary.

Washington Sells Euros to Buy Yen

Japan's Finance Ministry confirmed on Monday that it conducted a joint yen-buying operation with the U.S. Treasury on August 1, after Japanese authorities had already intervened unilaterally the day before with an estimated ¥8.45 trillion ($52.8 billion) in purchases, according to the Financial Times. The U.S. Treasury sold euros rather than dollars to purchase yen, a deliberate choice to avoid signaling broader dollar weakness.reuters+2

Treasury Secretary Scott Bessent confirmed the action and told CNBC on Tuesday that a "stable yen is not only important for the U.S., but very important for the entire region," warning that a sharply weaker yen could "trigger competitive devaluations, which is unhealthy". He said Washington would do "whatever it takes" to support Japan.ajupress+2

The intervention lifted the yen from 163.73 per dollar on July 31 to around 157.57 by August 1. It was trading near 158 on Wednesday.cnbc

Bank of America Revises Forecast

Bank of America ↗ 0.56% on Wednesday revised its year-end yen target to 149 per dollar, implying roughly 6% appreciation from current levels. Analysts cited the coordinated intervention and expectations of a Bank of Japan rate hike in coming months as supporting factors. The bank had previously forecast 152 per dollar at year-end.bloomberg

However, a Reuters poll found nearly 95% of about 60 FX strategists said intervention alone would not sustainably curb yen weakness without further Bank of Japan rate increases. Median forecasts in the poll showed the yen weakening to 159 in three months before recovering to 154 in a year.reuters

Korean Won Rides the Tailwind

South Korea emerged as a notable beneficiary. Reuters reported that South Korea and Japan each bought their own currencies on July 30, with the won strengthening about 2% that day to a nine-month high. The dollar-won rate fell 141 won during July, from 1,559 to 1,418, according to KB Kookmin Bank ↗ 0.58%.ajupress

The linkage reflects the won's role as one of Asia's most liquid proxy currencies. KB Kookmin Bank estimates that a 1% decline in dollar-yen historically accompanies a 0.6% decline in dollar-won. Nomura's ↗ 1.95% Dominic Bunning noted that Japan is "no longer confronting markets alone" with U.S. backing, though he cautioned the arrangement remains closer to tacit support than fully coordinated intervention.ajupress

Whether this "prosper-thy-neighbor" approach endures depends less on intervention than on tighter Japanese monetary policy. As Vanguard's Ales Koutny told Reuters: "History suggests without a change in the underlying fundamentals, its impact fades relatively quickly".reuters