Wall Street Suggests Intervention Effects Diminish, Yen Struggles to Break 155

Despite suspected multiple interventions by Japanese authorities, the yen's exchange rate has not been able to break through the 155 level. This sign has raised questions in the market about whether the recent rise of the yen can be sustained in the near term.

Since April 30th, the yen has rebounded sharply on several occasions, only to stop before reaching that level, and then it has given up part of its gains. Although the Tokyo side has ample reserves to continue intervening, price trends indicate that market demand for the US dollar remains strong.

The current economic context continues to favor the strengthening of the US dollar. Even though there is hope for interest rate cuts due to the situation in the Middle East, energy prices remain high.

The Bank of Japan is at least more than a month away from a potential rate hike. Meanwhile, the Federal Reserve seems no closer to cutting rates. This interest rate differential makes it difficult for simple interventions to fundamentally reverse the trend of yen depreciation.

Goldman Sachs' latest currency market observation shows that each intervention-induced yen rebound has become a buying opportunity for investors. Goldman Sachs' clients are frantically buying US-yen currency pairs after each intervention.

Hedge funds and Japanese retail investors' capital flows tend to buy US dollars. The market has already seen through the Bank of Japan's operational rhythm. Investors believe that if the macro background does not change, the success rate of defending specific levels will be very limited.

According to an analysis of the Bank of Japan's accounts, the Japanese government entered the market on April 30th when the yen broke through the 160 red line, costing about 34.5 billion US dollars.

Traders pointed out that the sudden market volatility on May 1st, 4th, and 6th all had the typical characteristics of central bank intervention. JP Morgan strategists believe that defending the 160 level is strategically fragile. This approach faces the risk of attracting concentrated attacks from the market.

Goldman Sachs analysts believe that Japan still has ample financial means at present. Based on last week's intervention scale, Japan still has the capacity to conduct as many as 30 more similar interventions.

Japan's Deputy Finance Minister, Jun Mimura, said on Thursday that Japan is ready to take all-round measures against speculative behavior in the foreign exchange market. He emphasized that International Monetary Fund rules do not limit the frequency of authorities intervening in the market.

However, the effectiveness of intervention is clearly weakening, and the market is increasingly viewing intervention as nothing more than level targeting. If the Bank of Japan does not address its lagging position through continuous rate hikes, the yen may continue to weaken in the short term.

Investors' next focus is on the US employment data later this week. Whether crude oil prices will fall by more than 10% is also key. Only if there is a substantial change in the macro environment can the yen possibly break through the 155 level.