DBS Group Research Strategist Chang Wei Liang reports that the Japanese Yen (JPY) remains undervalued, but this undervaluation has narrowed after Japan's second foreign exchange (FX) intervention of 2026, which was conducted jointly with the United States (US) [1]. This coordinated action is notable for its rarity, with the last joint intervention between the US and Japan occurring 15 years ago in the aftermath of the 2011 Tohoku earthquake, when the goal was to weaken an excessively over-valued JPY [1].
The intervention aims to curb JPY weakness and ease pressure on other Asian currencies, specifically the South Korean Won (KRW) and Renminbi (RMB), which are also considered undervalued according to DBS's DEER model [1]. By limiting JPY weakness, the intervention helps alleviate unwanted selling pressure on these regional currencies [1].
US participation in the intervention is seen as enhancing the credibility of Japanese authorities' actions, which could reduce the scale of FX intervention and associated asset sales that might otherwise increase volatility in the US Treasury market [1]. Furthermore, US support may indicate 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 [1].
Overall, the coordinated FX intervention has led to a narrowing of the JPY's undervaluation from record levels, signaling a potential shift in valuation and market dynamics for the yen and other Asian currencies [1].
CONCLUSION
The rare, coordinated FX intervention by the US and Japan has narrowed the Japanese yen's undervaluation and eased pressure on other Asian currencies. Enhanced credibility from US participation may reduce market volatility and signals a potential shift in regional currency dynamics.