USDJPY Reverses from 40-Year High

The USDJPY pair retreated from multi-decade highs following a rare joint intervention by the United States and Japan. In July, quotes climbed to 163.99 — the highest level in around 40 years — but by August 4, they had declined to the 157.7 area. At the peak of yen strengthening, the pair dropped to 155.20. A similar situation occurred in July 2024, when the pair rose to 161.9 and then fell to 139.7 over the following months.

Japan’s Ministry of Finance confirmed that on July 31 it bought yen jointly with the U.S. Treasury. According to Reuters, the U.S. side used euros rather than dollars for the operation. This approach helped support the Japanese currency without creating the impression that Washington was aiming to weaken the dollar.

Factors behind yen strengthening:

Joint intervention. U.S. participation significantly amplified the impact of the operation and increased market confidence in authorities’ determination to halt the yen’s decline. For traders, this signaled that further USDJPY growth could face not only Japan’s actions but also support from Washington.
Threat of further action. Japanese authorities stated they are ready to intervene again if yen weakness becomes excessively rapid. The risk of sudden intervention makes market participants more cautious about opening new positions against the yen.
Closing speculative positions. The sharp drop in USDJPY forced traders to take profits on bets against the yen. The mass closing of such positions accelerated the pair’s decline and boosted short-term demand for the Japanese currency.

At the same time, fundamental pressure on the yen has not disappeared. Interest rates in Japan remain lower than in the U.S., so the dollar still holds a yield advantage. Without further tightening by the Bank of Japan, the effect of the intervention may gradually fade.

In the near term, key levels for USDJPY are 155 and 160. A move below 155 could strengthen the yen further, while a return above 160 would indicate that the impact of the intervention is weakening.

According to FreshForex analysts, the risk of sharp USDJPY movements remains high. Traders should closely monitor statements from Japanese and U.S. authorities, Bank of Japan decisions, and U.S. labor market data. The possibility of another intervention creates trading opportunities but also increases the risk of sudden reversals.

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