Citi: Japan Yen Intervention to Propel Currency Recovery

Citigroup (Citi) analysts indicate that the recent coordinated yen intervention by Japan and the United States is expected to provide significant support for the recovery of the long-weakened Japanese currency. The bank forecasts that this intervention will impact the Bank of Japan's (BoJ) monetary policy normalization and the fiscal policy of Prime Minister Sanae Takaichi's administration.

Japan and the United States undertook a rare coordinated intervention to prop up the yen after it fell to a 40-year low of around 163.99 per dollar in July. Japanese Finance Minister Satsuki Katayama stated that the action was taken pursuant to the U.S.-Japan Finance Ministers' Joint Statement issued in September 2025, aimed at countering excessive volatility and disorderly movements in the Japanese yen. U.S. Treasury Secretary Scott Bessent emphasized that the yen was "significantly undervalued" and that "excessive volatility" harms markets. This marked the first joint intervention since 2011.

According to Bloomberg analyses, Japan is estimated to have used approximately $34 billion in the currency market to support the yen. Other reports suggest record intervention spending exceeding $61.2 billion in April and May, with a single-day intervention of approximately ¥5 trillion on April 30. The U.S. Treasury's move to buy yen for euros, rather than selling dollars, was seen as an unusual step likely intended to help strengthen the yen without implying that Washington desires a softer dollar. Citi noted that trading volumes in USD/JPY surged to about $27 billion in the early Monday window, significantly higher than the recent average of $1.9 billion, suggesting strong indications of official intervention.

Following the intervention, the yen surged by as much as 5% over three trading sessions, reaching a three-month high of 155.20 per dollar, recovering from its 40-year low of 163.99 touched in July. The weak yen had become a growing concern for Japanese policymakers due to rising import prices and household living costs, given Japan's heavy reliance on imported energy and food. The Bank of Japan maintained its policy rate at 1.0% in July, despite concerns about inflation. However, some analysts suggest that while the intervention may temporarily halt the yen's depreciation, it might not be sufficient to reverse the underlying downtrend.

The primary reason for the yen's historical weakness lies in the significantly lower interest rates set by the Bank of Japan compared to other major economies, such as the U.S. Federal Reserve. The BoJ's 1% rate remains below the Fed's target range of 3.5%-3.75%. This interest rate differential incentivizes investors to hold dollar-denominated assets while deterring investment in yen-denominated assets. Concerns exist that prolonged yen weakness could erode public confidence in the BoJ's policy framework and exacerbate inflation without boosting real wages.

Citi's long-term outlook for a yen recovery is favorable due to the joint intervention. However, the bank also sees a risk that once the intervention ceases, the USD/JPY pair could rebound to the ¥160-¥162 range, and it does not consider a level below ¥158 per dollar sustainable in the medium term. Citi's USD/JPY estimate based on its two-tier model currently stands around ¥163 per dollar. Analysts anticipate that concerns about further intervention by Japanese and U.S. authorities will constrain downward pressure on the yen in the near term. Some strategists expect the yen to appreciate against the U.S. dollar towards the end of the year as intervention risk persists. Bank of America strategists noted that the 155 yen level could prove to be a critical inflection point, as the currency pair found support around that level during previous interventions.