POLL-US dollar to retain strength, yen intervention no game changer

Median forecasts showed the yen, currently trading at around 158/$, weakening to 159/$ in three months before gaining to 157/$ in six and 154/$ in a year as the dollar declines. The three- and six-month dollar/yen medians were upgraded from 158.5/$ and 156/$, the weakest consensus views on the Japanese currency since Reuters polling began in 1993. The yen is down around 1% against the dollar this year and roughly 30% since early 2022, despite multiple interventions in that period. "Intervention ... can be effective in slowing the pace of depreciation, reducing excessive market moves and providing short-term support, but history suggests without a change in the underlying fundamentals, its impact fades relatively quickly," said Ales Koutny, head of international rates at Vanguard. "We have previously seen large-scale interventions produce meaningful moves for a matter of days or weeks rather than months." A lasting yen recovery would require a more hawkish BOJ, a meaningful narrowing in U.S.-Japan rate differentials, lower energy prices or a broader slowdown encouraging Japanese investors to repatriate capital, Koutny added. Derek Halpenny, head of global markets research EMEA at Mitsubishi UFJ Financial Group, broadly agreed. "Intervention is probably done. I don't think the U.S. will be coming in again ... it is a significant development and I think it limits the appetite for buying dollar/yen to a much greater extent than in previous episodes of intervention when it was only Japan intervening," he said. With the U.S. economy performing well, the Federal Reserve may need to raise interest rates sooner rather than later to contain inflation pressures stemming from the [U.S.-Israeli war with Iran](https://www.reuters.com/world/iran/). That means the 2% rise in the dollar so far this year may hold for a while. According to the poll the euro will hold around $1.15 in the next three months before strengthening about 1% to $1.16 by end-January and to $1.18 in a year. EUR= Those results extend a recent shift away from forecasts of steeper dollar declines. Nearly half of respondents, 25 of 53, also expected current long-dollar positions to be little changed by end-August while 22 saw them decreasing. Six forecast a further increase. "I still have an underlying view the dollar will remain strong as long as the U.S. economy remains strong. But I don't think it's going to go dramatic distances - we're either going to be range-bound or go another leg higher depending on how the incoming economic data turn out," said Kit Juckes, chief FX strategist at Societe Generale. "Left to itself, the yen is a cheap currency on most measures because it's got a weak economy supporting it and while interest rates may be going up they're pretty low. There are still long-term debt concerns out there. There are still questions about potential growth given the population metrics. And so all of that's weakened the currency." The U.S. dollar will hold firm in coming months before weakening later in the year, according to FX strategists surveyed by Reuters who also generated some of the weakest consensus Japanese yen forecasts since polling began in the early 1990s. Fuelled by interventions from Tokyo and coordinated action with Washington in recent days, the yen rallied about 4% against the dollar but was not able to reclaim a peak from the previous intervention by the Japanese authorities in May. JPY= Nearly 95% of about 60 respondents in the July 31-August 5 survey said future Japanese currency interventions alone would not sustainably curb the currency's weakness. Nearly every respondent who said that also said the Bank of Japan would have to raise interest rates to make a lasting impact. So far, the BOJ has been reluctant to raise borrowing costs quicker than once every six months, in part because of a weak economy, although interest rate futures now show another rate rise in October following June's hike to 1%.

POLL-US dollar to retain strength, yen intervention no game changer

Yen intervention seen as temporary without policy changes

Long-dollar positions and euro forecasts remain supportive

Dollar expected to stay firm before weakening later in the year

Most respondents say intervention alone will not curb yen weakness

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