The Japanese yen has become the weakest-performing currency among the G10 group this month. As the prior boost from joint US-Japan intervention fades, the market is once again betting on potential intervention by Japanese authorities. Data shows the yen has depreciated about 0.5% against the US dollar since August, reversing a roughly 3.2% gain from July.

Last Friday, weaker-than-expected US employment data briefly pushed the dollar lower, giving the yen a short-lived rebound. However, it has since retreated, with the dollar-yen pair climbing back above 158. With Japan entering the Obon holiday week, market liquidity may decline, and traders are on alert for sharp exchange rate volatility in a low-liquidity environment, which could even trigger a new round of intervention.

"Japan is in a holiday period, so market participation may be lower, and the domestic event calendar is relatively light. Investors will continue to watch for statements from both Japanese and US officials on their intervention stance," said Yujiro Goto, a strategist at Nomura Securities.

Earlier this month, Japan and the US conducted their first joint yen-buying intervention since 1998. At the time, the yen had fallen to nearly 40-year lows, with the dollar-yen pair briefly approaching 164. After the intervention, the yen strengthened to around 155, but the rally has since faded.

Following the joint US-Japan intervention, speculative funds quickly reduced their bearish bets on the yen. Data from the Commodity Futures Trading Commission (CFTC) shows that as of August 4, net short yen positions held by leveraged funds fell to about 63,600 contracts, a significant drop from the near-historic high of 138,000 contracts at the end of June.

However, most analysts believe that intervention alone is unlikely to change the yen's long-term weakening trend. The substantial interest rate differential between the US and Japan, concerns over Japan's fiscal expansion, and geopolitical risks remain key factors weighing on the yen. Goldman Sachs strategists noted that the post-intervention reaction has been relatively limited, mainly because the fundamental factors driving the yen's weakness persist. If there is no clear change in the global environment or policy, downward pressure on the yen could re-emerge.

Meanwhile, the Bank of Japan (BOJ) has signaled further rate hikes. A summary of opinions from the BOJ's July meeting showed that some members believe upside risks to inflation have increased, and that the pace of rate hikes may need to accelerate. The market currently prices in about a 66% probability of a BOJ rate hike in September.

On the other hand, weak US employment data has reduced market expectations for the Federal Reserve to continue tightening policy. Traders now see the probability of a Fed rate hike in September at around 40%, down from roughly 60% before the jobs data release.

Corporate Concerns Over Weak Yen Side Effects and a Desire for Stability

Compared to financial markets, Japanese companies have a more complex attitude toward the weak yen. In the past, a weaker yen was typically seen as a boon for exporters, as overseas income converted back into yen increased. But now, Japanese firms are increasingly worried that the persistent depreciation is driving up import costs, weakening consumer spending, and dragging on the economic recovery.

"A weak yen doesn't necessarily mean the Japanese economy benefits," said Kenichiro Fujimoto, CFO of Mitsubishi Electric. "Problems that affect the entire Japanese economy also affect us."

Japan's economy is highly dependent on imports of energy, raw materials, and food. A weaker yen directly raises corporate costs and may weaken domestic demand. Norihiko Ishiguro, Chairman of the Japan External Trade Organization (JETRO), noted that while a weak yen does benefit exports, Japanese companies heavily rely on imported raw materials, "so it's not simply the case that exporters are always winners."

Sharp exchange rate volatility has already impacted Japanese corporate management decisions. Uniqlo parent company Fast Retailing expects to offset the cost pressure from a weaker yen by raising prices on some autumn/winter items by about 4%. Takeshi Okazaki, the company's CFO, said that if exchange rates change too quickly, it's difficult for companies to respond in time, which could have a significant impact on performance.

Ryohin Keikaku, which operates Muji, has chosen to increase its own production ratio and reduce import dependence to buffer cost pressures. At the same time, some large trading companies that benefit from a weak yen are also beginning to emphasize the importance of exchange rate stability.

Makoto Tanaka, CFO of Mitsui & Co., said the company hopes for market stability and lower exchange rate volatility. While a weak yen boosts overseas income, sharp fluctuations are increasing operational difficulties. Another major trading house, Mitsubishi Corporation, also stated that it will adjust its previous business assumption of a dollar-yen rate of 150 based on exchange rate changes.

A JETRO survey in March this year showed that nearly one-fifth of companies consider a dollar-yen rate of 120-124 to be the most ideal level, while only about 11% want the rate to be above 150. However, Japanese companies' expectations for the yen to return to the 120-130 range are diminishing. Kenichiro Fujimoto of Mitsubishi Electric noted that given Japan's economic fundamentals and trade balance, "it may be difficult to see the dollar-yen exchange rate return to 120-130 again in the future."