At the end of July and the beginning of August, Japan and the U.S. conducted a rare, joint currency intervention to support the yen, spending around $89 billion and $5-$10 billion, respectively.
Initially, the yen strengthened from 164 to 156 against the dollar, but two weeks later, USD/JPY is back near 160
Why? Because it did nothing to fix the underlying problems, including the huge rate gap between the U.S. and Japan, which keeps the carry trade attractive as investors borrow yen to buy, for example, higher-yielding U.S.assets. But hasn’t U.S. inflation started to cool, so the Fed might turn more dovish?
Indeed, July CPI eased to 3.4% year over year from 3.5% in June. Core CPI fell to 2.5% from 2.6%. PPI also came in below expectations, flat month over month versus +0.2% expected, while annual growth dropped to 4.7% from 5.5%.