Yen: Why Bessent backs himself for successful intervention
The desk's thesis is that US Treasury Secretary Scott Bessent's recent intervention in the FX market signals a bullish outlook for the yen, which is considered significantly undervalued. Per the full note by Chris Turner, Bessent's faith in the yen is partly based on the potential for supportive monetary policy shifts in Japan as well as the historical context of successful interventions. Current consensus sees the yen at 160.47, with a broad expectation of revaluation as firms project targets ranging from 145.00 to 161.71 for March 2026 across the market. Watch USD/JPY dynamics closely for any further indications of strength following the intervention, as this could pivot market sentiment dramatically.
What the desk is arguing
The desk argues that the intervention by Treasury Secretary Scott Bessent signals a renewed conviction that the yen is undervalued and poised for appreciation. As noted by Chris Turner, Bessent's background as a hedge fund manager informs his confidence, and strategic timing is key in FX interventions, especially considering the recent joint action between Washington and Tokyo. The strong sentiment behind the intervention reflects prevailing views that the yen could rise significantly given its current 20% undervaluation against the dollar.
Supporting this view, the desk points to consensus forecasts that depict the yen trading at levels around 160.47, with a broad median target range of 145.00 to 161.71 for March 2026 across multiple institutions like jpmorgan and goldman. The market is also analytical of the Fed's interest rate trajectory and any changes in Japan's monetary policy that may emerge subsequently.
The alternative view would suggest that if the intervention fails to yield immediate results, skepticism about the effectiveness of any unilateral FX intervention could lead analysts to revise their projections lower.
01Bessent's intervention indicates confidence in yen appreciation.
02The desk views the yen as currently 20% undervalued against the dollar.
03Consensus price targets for JPY are directing upward from current levels.
04Market participants are advised to closely monitor the implications of this intervention.
Market implications
Watch USD/JPY for signs of recovery post-intervention, particularly movements towards the 155.00 target range which firms like **deutschebank** have set. The performance in this pair will likely influence broader market sentiment towards the yen's future strength. Positioning shifts may occur as traders adjust expectations based on further developments in U.S. policy interest rates.
Risks to this view
If the market does not respond positively to the intervention or if U.S. inflation trends require stricter Fed policies, further weakness in the yen could invalidate the current bullish outlook. Unanticipated geopolitical developments or shifts in economic data could also lead to a reassessment of the yen's value against major currencies.
Opinions Opinion by Chris Turner Yen: Why Bessent backs himself for successful intervention Published 07:10 FX United States In a recent podcast , I drew the conclusion that US Treasury Secretary Scott Bessent fancies his chances of the recent FX intervention being successful. We agree that the yen is significantly undervalued and are reminded that key policy interventions such as this and those seen in Sweden and Mexico in 2023 can warn of significant FX trend changes Having made his name with speculative bets on exchange rates, it appears as though Bessent is betting the yen will appreciate Timing is everything Unlike the 1990s and early 2000s, intervention in major FX pairs is exceptional. And the late July joint intervention between Washington and Tokyo was the first such yen-buying exercise since the Asian FX crisis in 1998.
Bessent will have committed a lot of political capital to this intervention and will want to be proved right. As a former hedge fund portfolio manager, he will know that timing is everything. Japanese unilateral intervention proved successful in the summer of 2024 as it caught the market turn in the Fed cycle, when the US policy rate was subsequently cut 75bp later in the year.
But what gives the Treasury Secretary the confidence to intervene now? We discuss the rationale for the intervention in this article . The timing probably owes to a conviction call that the yen is undervalued, plus a call on yen-supportive policy choices coming out of Japan.
During the intervention, Bessent described the yen as being ‘very undervalued’. We agree and, based on our own fair value models, see the yen as around 20% undervalued against the dollar. Here's what ING FX Strategist Francesco Pesole has to say about our fair-value model: We generally assess medium-term FX valuation through our Behavioural Equilibrium Exchange Rate (BEER) model, which estimates real fair value using quarterly data on terms of trade, productivity, current account balances and government spending.
This framework deliberately excludes shorter-term market drivers such as rates and equities, allowing us to isolate the contribution of economic fundamentals to exchange rates. In USD/JPY, it's particularly visible how the erosion in JPY value is inconsistent with long-term economic fundamentals, and the pair has shown persistently elevated real overvaluation – above 20% – throughout 2026. USD/JPY strength inconsistent with economic fundamentals Source: ING, Macrobond "> Source: ING, Macrobond Policymakers can pick the turns While many will be sceptical that joint US-Japan intervention can make any difference in the $480bn per day world of USD/JPY trading, intervention can have an important signalling effect that FX moves have come too far.
Two instances come to mind over the past few years when central banks have taken a view on their currencies, and the market has listened. In June 2023, Sweden’s Riksbank surprised the market with a plan to hedge its FX reserves. This all sounded quite strange, but as we discussed at the time , it reflected the Riksbank’s view that the Swedish krona was undervalued and that a krona rally could generate some unwelcome losses to the Riksbank’s equity capital.
At the time, EUR/SEK was trading close to 12.00 and never rose much further. We estimated that the actual hedging might have depressed EUR/SEK by 2-3%, but the Riksbank’s signalling that the krona was cheap resonated broadly. Also in 2023, Banxico in September announced that it was going to unwind its $7.5bn short USD/MXN forward book acquired through peso-supportive intervention in 2017 and 2020.
At the time of the announcement, USD/MXN was trading around 17.00, and the move helped convey Banxico’s opinion that the peso was getting too strong. Again, the move proved well-timed and USD/MXN has struggled to sustain any moves below 17.00 since. Will Bessent be proved right?
The Treasury Secretary is betting that the downside for the yen is limited and that a weaker USD/JPY can help US manufacturers compete more, both in Japan and in third markets. There are clear Mar-a-Lago currents running through this activity. The added benefit of intervention, as Bessent has admitted, is to discourage the rest of Asia from weakening their currencies to compete with Japan.
China’s 30% devaluation in 1994 was widely blamed for the Asian FX crisis in 1997/98. But to be successful with this high-profile intervention, Bessent will need the fundamentals to change. Part of that will be higher interest rates in Japan.
Hence the suggestion, both from Bessent himself and from reports out of Tokyo, that the government will tolerate a faster pace of Bank of Japan tightening. In other words, more than one 25bp BoJ hike every six months. The chances of an earlier BoJ hike in September are now being priced around 75%.
But durable yen appreciation requires Japanese capital to stay onshore or to be brought home. And that is why growth differentials and the attractiveness of investment returns are so important. In July, Tokyo announced a new growth strategy , aiming to deploy JPY370tr ($2.3tr) of public-private investment by 2040.
The US supports this strategy not only on the geopolitical grounds of having a strong defensive bulwark in the region, but also on commercial grounds of a potentially bigger export market. The link between investment returns and the yen The success of Japan’s growth strategy has a clean link to the yen. Asian nations like Japan and Korea acknowledge that weak productivity growth amidst ageing populations is leading to investment outflows in search of higher returns.
The significance of relative international investment returns is discussed in a brilliant research paper recently published by economists at the Bank of Korea. They note that Korea is heading the same way as Japan, where investment income is representing an increasing portion of the current account surplus. Even though the large current account surplus looks good on paper, the problem is that higher investment returns overseas mean the investment income is staying offshore as reinvested earnings.
The paper cites some reinvestment ratios – or the portion of overseas investment income that stays offshore as retained earnings – as Japan (46%), Korea (40%), Germany (28%) and Taiwan (18%). While a quick fix of a foreign dividend tax holiday, like the one in Korea introduced in 2023 (see chart below), might temporarily bring reinvested overseas income home, the lasting solution, as the authors note, is to deliver lasting productivity enhancements at home through investment. Hence Japan’s current focus on a massive investment plan.
Bessent is clearly supportive of this plan and is betting that some well-timed intervention can at least buy some time for it to bear fruit. And in any case, Japanese companies have enjoyed 95% tax exemption on retained earnings since 2009, so new tax breaks here look unlikely to make much difference to the path of the yen. But there could be other structural solutions, such as domestic assets (JGBs) being included in NISA accounts and much focus placed upon the investment allocations of Japan’s Government Pension Investment Fund (GPIF).
Currently the GPIF has a 25% benchmark for JGBs and 50% for domestic assets. Speculation is already building that there could be a repeat of the October 2014 ‘big bang’ announcement co-ordinated between the BoJ and GPIF – perhaps at the 30 October BoJ meeting this year – where the GPIF could announce a re-orientation to domestic assets alongside a BoJ hike. Korean tax changes brought reinvested earnings home Source: Bank of Korea, ING "> Source: Bank of Korea, ING The above policy changes are speculative at this stage.
But having made his name with speculative bets on exchange rates, it looks like Bessent is betting the yen will appreciate. Joint intervention has created a catalyst, but lasting yen appreciation ultimately depends on higher domestic returns, stronger growth and a supportive Bank of Japan policy path. Our base case assumes that US-Japan growth and interest rate differentials narrow – resulting in USD/JPY at 158 by the end of 2026 and 152 by the end of 2027.
Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download In this opinion Timing is everything Policymakers can pick the turns Will Bessent be proved right?
The link between investment returns and the yen Author Chris Turner Global Head of Markets and Regional Head of Research for UK & CEE Chris is Global Head of Markets and Regional Head of Research for UK & CEE. Together with his team, he provides short and medium-term FX recommendations for ING's corporate and…
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