The Japanese yen weakened against a basket of major and secondary currencies during Asian trading on Tuesday, pulling back from a three-month high against the US dollar and heading for its first daily loss in five sessions as traders locked in profits after the currency's recent rally.

Despite the pullback, the yen remains under close scrutiny from monetary authorities in both Tokyo and Washington following their coordinated intervention in the foreign exchange market to support Japan's currency and curb its sharp depreciation against the US dollar.

The Price

The US dollar rose 0.4% against the yen to 157.75 from an opening level of 157.14, after touching an intraday low of 157.14.

The yen closed Monday 0.2% higher against the US dollar, marking its fourth consecutive daily gain and reaching a three-month high of 155.23, supported by coordinated intervention from Japan and the United States.

A 5% rally driven by intervention

Since last Thursday, the Japanese currency has gained about 5% against the US dollar, fueled by coordinated intervention from Japanese and US authorities in the foreign exchange market.

Japan's Ministry of Finance said the recent yen-buying operation conducted in cooperation with the US Treasury was intended to counter the excessive volatility and disorderly movements that had characterized the yen in recent months.

Japanese Finance Minister Satsuki Katayama told reporters: "We will not hesitate to carry out further coordinated interventions."

Japan's top currency diplomat, Atsushi Mimura, said the coordinated action with the United States reflects an unprecedented level of cooperation between the two countries in supporting foreign exchange market stability.

Mimura added that the government will continue coordinating its currency policy with the Bank of Japan's monetary policy to ensure decisive action whenever necessary to limit excessive yen weakness and preserve financial market stability.

US Treasury Secretary Scott Bessent also confirmed the coordinated intervention, saying the joint foreign exchange operations carried out on Friday helped reduce disorderly volatility in the yen.

US President Donald Trump said on Sunday that the United States was assisting Japan in supporting the yen as a gesture of friendship and in support of the global economy.

Details of the intervention

Thursday: The Bank of Japan carried out its largest unilateral intervention, with estimates based on liquidity and settlement data suggesting it spent between 6 trillion and 8.5 trillion, equivalent to roughly $36.5 billion to $59 billion, making it one of the largest single-day interventions in the central bank's history.

Friday (joint intervention): The US Treasury officially joined the operation for the first time by purchasing yen while selling US dollars and euros. Additional intervention on Friday and the following sessions is estimated at around 5 trillion, or approximately $32 billion, with direct US participation estimated at between $5 billion and $10 billion.

Monday: Authorities continued monitoring market activity and maintaining pressure on speculative short-yen positions, while Finance Minister Katayama declined to disclose the scale of any additional intervention in order to preserve the element of surprise.

Market views

Naomi Muguruma, Chief Bond Strategist at Mitsubishi UFJ Morgan Stanley Securities, said comments from Japan's top currency diplomat Atsushi Mimura and US Treasury Secretary Scott Bessent strengthen the position of the Bank of Japan's more hawkish policymakers and reinforce expectations of further monetary tightening.

Muguruma added: "I believe a September rate hike is now almost certain. It would make little sense for the Bank of Japan to wait until October, as doing so could trigger another wave of yen weakness and undermine the recent efforts to support the currency."

Tomo Kinoshita, Japan Global Market Strategist at Invesco, said concerns over additional intervention by Japanese and US authorities are likely to limit downward pressure on the yen in the near term.

Kinoshita added: "I expect the yen to strengthen further against the US dollar by the end of this year. Prime Minister Sanae Takaichi's economic stimulus agenda initially contributed to yen weakness, but the market now appears to have largely priced in the key elements of her policy."

Japanese interest rates

Market pricing for a 25-basis-point rate hike by the Bank of Japan at its September meeting has climbed above 90%.

Investors will closely monitor upcoming Japanese inflation, unemployment, and wage data to reassess expectations for the Bank of Japan's next policy move.