Will Bessent’s intervention mark a turning point for the yen?
US Treasury Secretary Scott Bessent backs the late-July joint US-Japan intervention to succeed, citing the yen's undervaluation against the dollar. Analysts at ING believe the yen is around 20% undervalued, with a fair-value model showing this gap has persisted through 2026.
Intelligence analysis by Llama
Analysts at ING believe the yen is undervalued against the dollar, with a fair-value model showing this gap has persisted through 2026. US Treasury Secretary Scott Bessent backs the late-July joint US-Japan intervention to succeed, citing the yen's undervaluation.
Imagine you're at a store, and the price of something is too low. That's kind of what's happening with the yen. Some people think it's undervalued, which means it's worth more than it's being sold for. The US Treasury Secretary is trying to help the yen by buying it, which could make it more valuable. But it's not a guarantee, and it depends on other things like how well the Japanese economy is doing.
Analysis
Bessent's Intervention: A Turning Point for the Yen?
US Treasury Secretary Scott Bessent's recent intervention in the yen market has sparked debate about whether it will mark a turning point for the currency. Analysts at ING believe the yen is undervalued against the dollar, with a fair-value model showing this gap has persisted through 2026.
According to ING's Global Head of Markets Chris Turner, Bessent's confidence in the intervention stems from a conviction that the yen is undervalued and expectations of yen-supportive policy shifts in Japan. Turner cited two precedents where central bank signalling shifted currency trends: Sweden's Riksbank hedging its FX reserves in June 2023 when it viewed the krona as undervalued, and Mexico's Banxico unwinding a $7.5 billion short USD/MXN forward position in September 2023 to signal the peso was too strong.
Turner said durable yen appreciation requires Japanese capital to stay onshore, tying the currency's path to Tokyo's new growth strategy, announced in July, to deploy 370 trillion yen ($2.3 trillion) of public-private investment by 2040. He cited Bank of Korea research showing Japan retains 46% of overseas investment income offshore as reinvested earnings, versus 40% for Korea, 28% for Germany and 18% for Taiwan.
Turner said further structural moves could include adding Japanese government bonds to NISA accounts or a reallocation by Japan's Government Pension Investment Fund toward domestic assets, potentially timed to the BOJ's Oct. 30 meeting, though he called such changes speculative.
"Having made his name with speculative bets on exchange rates, it looks like Bessent is betting the yen will appreciate," Turner said, adding that lasting appreciation depends on higher domestic returns, stronger growth and a supportive BOJ policy path.
ING's base case sees USD/JPY at 158 by the end of 2026 and 152 by the end of 2027.
Key points
- The yen is undervalued against the dollar, according to ING's fair-value model.
- US Treasury Secretary Scott Bessent backs the late-July joint US-Japan intervention to succeed.
- Analysts at ING believe durable yen appreciation requires Japanese capital to stay onshore.
- Further structural moves could include adding Japanese government bonds to NISA accounts or a reallocation by Japan's Government Pension Investment Fund toward domestic assets.
If the intervention is successful, the yen could appreciate, making it more valuable. This could lead to higher returns for Japanese investors and a stronger economy. Additionally, a more valuable yen could make Japanese exports more competitive, leading to increased sales and revenue.
However, the intervention may not be successful, and the yen could continue to depreciate. This could lead to lower returns for Japanese investors and a weaker economy. Additionally, a weaker yen could make Japanese exports less competitive, leading to decreased sales and revenue.