It was always going to be a tough one. Japan’s ministry of finance (MOF) know very well that they are going up against a striking fundamental backdrop that dictates the yen to be lower. With the US-Iran war still ongoing, there is no change to the fact that all the factors in play are pointing to a weaker currency.

But in not wanting to let things slip from their grasp, they stepped in last week to shoot down USD/JPY after breaching the 160.00 level. And once they showed their hand, there is no turning back now.

The moves last week did not produce a strong enough impact and that prompted the MOF to decide to intervene again this week. And honestly speaking, I personally feel that this was a wrong move on the part of Tokyo officials.

Just be reminded that Japanese markets were closed for at least half the week. Even so, they intervened on Monday around the same level as they did on Friday. And they did so during low liquidity hours generally amid the transition from Asia to European trading.

The impact wasn’t lasting once again with traders buying back up USD/JPY around 155.50-70 levels. And eventually, that prompted another round of intervention on Wednesday. This time around, the force was seemingly stronger. However, it wasn’t enough to crack the 155.00 mark to trigger additional stops on the way down.

And since then even with the dollar softening, USD/JPY has made its way back up to near 157.00 today. So, what gives?

The fact remains that the fundamentals for the yen remain extremely bearish. Even if the war were to end today, it will take many more months for the oil market to normalise. In the meantime, higher energy prices will persist and continue to weigh on the Japanese economy.

Adding to that is the Takaichi trade still running in the background and the BOJ needing to balance out their push for a rate hike alongside faltering economic conditions, it’s a tough one to be optimistic about. That especially as the BOJ intentions to raise interest rates may also be put off by surging cost-push inflation now. So, there’s a fine balance to be struck there too.

Now when you factor in Japan getting desperate and intervening ineffectively, it just makes for traders to be more bold in trying to punish the currency even more.

I outlined previously why intervening in low liquidity conditions is a bad idea:

“It might sound counter-intuitive to not want to act during low liquidity periods, but there’s a certain nuance to it. The main thing about intervention isn’t so much so as the money but more so about the signaling. You want enough players in the market to get that signal and amplify it, so as to get the idea that “we shouldn’t mess with the MOF/BOJ”. Otherwise, that signal can get lost in translation if there isn’t enough liquidity follow through. And at the end of the day, it might just be passed off as more noise than an actual leading signal to traders.”

For now, they continue to reaffirm that they are still “in control” and even the IMF warning is not going to stop them. Obviously that’s a play on the optics but after spending perhaps close to $70 billion, they have to know that they can’t continue with this for too long before needing to dig much deeper into their massive war chest in terms of foreign currency reserves. Is it time to sell some Treasuries?