Nearly a month after Japan and the US stepped into currency markets to defend the yen, the question for investors is what it changed in practice, with experts agreeing that the impact might not be what investors might immediately expect.
Japan's Ministry of Finance (MoF) and the US Treasury confirmed the joint yen-buying operation on 1 August, the first coordinated intervention since 1998. Japan spent an estimated $36bn–$59bn on the operation, while the US sold euros to funds its purchases. Dollar/yen fell sharply from near 160 to the mid-150s in the aftermath, before drifting back toward 159 within days.
Experts below agree that this isn’t entirely a currency story and, in some ways, it might have more of an impact on US bonds than it does on the Japanese equity market. As such, one manager has been adding to his gold holdings in response.
Currency moves
The motives for the decision differed, according to Michael Strobaek, global CIO at Lombard Odier, and Nannette Hechler-Fayd'herbe, the firm's head of investment strategy, who said Japan “sought to limit intervention needed alone, while the US aimed to head off Japanese investors selling treasuries”.
They doubt the move will provide lasting yen support, citing high long-dated treasury yields, large developed-market budget deficits, and a Fed chair guiding toward balance sheet reduction.
Joe Amato, president and CIO for equities at Neuberger, said the intervention "steadied the yen, but the underlying rate differential will be the ultimate driver of the currency's value."
Yen-buying depends partly on Japan selling Treasury holdings, which pushes up US yields while defending the currency – historically making Washington wary of joint operations.
Finance minister Satsuki Katayama and US Treasury secretary Scott Bessent have signalled they won't hesitate to intervene again if disorderly moves resume – for Amato, a sign of intention and not a fix.
“Intervention can blunt the sharpest edges of that dynamic temporarily but it cannot neutralise the incentive structure driving it," he said, leaving the BoJ carrying the weight of anything durable.
BoJ governor Kazuo Ueda struck a more hawkish tone at July's meeting, with Strobaek and Hechler-Fayd'herbe expecting the next hike in September and three more in 2027.
Naoki Kamiyama of Amova Asset Management flagged a misalignment beneath that: prime minister Takaichi's administration is reportedly reluctant to see further tightening, while Katayama and Bessent appear to have implicitly pushed the BoJ toward it.
A tightening yen could be a positive, according to Nicola Takada Wood, Japan managing director at Asset Value Investors, who argued today's backdrop is more durable than early Abenomics.
“While the 2013 rally was driven primarily by aggressive monetary easing, fiscal stimulus and a sharp depreciation of the yen, the current backdrop is underpinned by more durable structural improvements,” she said.
Repercussions on markets
But the intervention in the yen isn’t only a currency story.
For Wilf Blake, investment manager at RC Brown, the episode is a signal that pressure is building in the US funding and bond markets, where the Treasury is increasingly constrained in how it finances itself, as he told Trustnet earlier this week.
“[US Treasury officials] are in a complete bind. All their borrowing has to be at the short end because they can't issue long-dated paper, because people are petrified about all the deficits – their position is a mess,” he said.
So for investors, the only “true protection against the paper currency shambles” is physical gold, which the manager is buying more of, having taken his allocation up to about 7% and looking to expand it even further to more than 10%.
For Japanese equities, Kamiyama argued the impact is likely to be smaller than the currency might imply. Japan's recent gains have been led by AI and semiconductor names, driven by volume growth rather than a weak yen, so a stronger currency is unlikely to meaningfully dent those earnings.
Carmakers are more exposed to currency swings but no longer drive the Nikkei 225 the way they once did, which softens the read-through to the index. If the yen does strengthen from here, Kamiyama expects the Topix, Japan's broader equity index, to be better placed than the more concentrated Nikkei 225, given its heavier weighting toward domestic sectors that benefit from lower import and energy costs.
For Kamiyama, further BoJ tightening and gradual yen strength should net out close to neutral for equities, positive for banks and domestic demand offset elsewhere.
The Topix, including dividends, rose 0.2% in July while the Nikkei 225, including dividends, fell 8.1% over the same month, Kamiyama said. Of the Tokyo Stock Exchange's 33 sectors, 25 rose, led by marine transportation, rubber products and iron & steel, while eight fell, including nonferrous metals, glass and ceramics and electric appliances.
Gains came largely from foreign inflows after the government reaffirmed its growth-oriented economic policy, according to Kamiyama, while concern over US AI spending, stoked by a new Chinese AI model, spilled into Japanese semiconductor stocks.
For investors interested in the market, fund selectors highlighted their favourite Japan funds recently on Trustnet.