Japanese Yen: Interventions signal valuation shift – DBS

DBS Group Research Strategist Chang Wei Liang highlights that the Japanese Yen (JPY) remains undervalued but that this undervaluation has narrowed after Japan’s second FX intervention of 2026, conducted jointly with the United States (US). Liang stresses that rare co-ordinated action, last seen in 2011, aims to curb JPY weakness and ease pressure on Asian currencies such as South Korean Won (KRW) and Renminbi (RMB).

Coordinated action supports Asian FX

"Co-ordinated FX intervention between the US and Japan is rare, with the last joint intervention occurring 15 years ago to weaken an excessively over-valued JPY in the aftermath of the 2011 Tohoku earthquake."

"Indeed, both the KRW and RMB are quite undervalued according to our DEER model, and so interventions to limit JPY weakness also help alleviate unwanted selling pressure on regional currencies."

"US participation further strengthens the credibility of Japanese authorities' actions, potentially reducing the scale of FX intervention and associated asset sales that could otherwise contribute to heightened volatility in the US Treasury market."

"Furthermore, US support may reflect expectations of JPY gains, potentially informed by US Treasury Secretary Bessent's regular dialogue with Japanese policymakers and his insight into Japan's policy deliberations."

"The Japanese yen's (JPY) undervaluation has narrowed from record levels following Japan's second FX market intervention this year, which was conducted in co-ordination with the US."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)