As the Japanese yen exchange rate continues to plummet rapidly through the 160 mark, setting a record low since 1986, media outlets have pointed out that the persistent devaluation of the yen has become an extreme example of American financial hegemony. However, the Japanese government appears powerless in the face of the Federal Reserve's insistence on its long-term high-interest-rate policy.

On Wednesday, June 26th, Eastern Time, the US Dollar Index hit a new high for the year, exerting significant pressure on non-US currencies. At the same time, the US stock market performed strongly, and the US Treasury easily attracted buyers in a $70 billion Treasury auction.

In contrast, the yen suffered a starkly different fate, with its exchange rate against the US dollar plunging by 0.6% at one point, reaching 160.82 yen per US dollar, surpassing the level when the Japanese government intervened in the market in April. In terms of exchange rate against the euro, the yen fell even further to 171.79, setting a new historical low.

As of press time, the yen is still hovering above 160 against the US dollar.

Analysis indicates that the yen's interest rates remain near zero, while US Treasury rates remain high. The significant interest rate gap between Japan and the United States has become the main factor driving the yen's devaluation this year, causing continuous inflow of Japanese funds into the United States.

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In the turmoil of this currency market, the Japanese Deputy Minister of Finance, Masato Kanda, reiterated that the authorities are closely monitoring the dynamics of the foreign exchange market and are prepared to take appropriate countermeasures when necessary. However, so far, the efforts of the Bank of Japan officials to boost the yen do not seem to have achieved the expected results. Since the Japanese government's record intervention of 9.8 trillion yen (over 60 billion US dollars) in the foreign exchange market, the yen's devaluation trend has not been effectively curbed.

Analysts generally believe that the Bank of Japan's intervention measures are unlikely to change the yen's weak trend. Market analysts generally believe that any further intervention measures by the Japanese government in the future may also be difficult to change the current weak pattern of the yen. According to the latest data released by the Commodity Futures Trading Commission, asset managers' bearish bets on the yen have reached the highest level since 2006.

Bob Savage, head of Market Strategy and Insights at BNY Mellon Capital Markets, emphasized:

"I don't think the current measures will be effective until the Federal Reserve truly eases its policy. From a macro perspective, the key lies in reducing the demand for dollars in the Japanese market. This may need to be achieved by raising Japan's long-term interest rates or lowering US interest rates. But at present, neither of these situations has been seen."Andrew Brenner from the International Fixed Income Department of NatAlliance Securities LLC stated:

"The Federal Reserve's policy is key. The policy of maintaining higher interest rates for a longer period leads to high short-term interest rates, with funds continuously flowing into the United States, thereby maintaining the strength of the US dollar. This phenomenon is undoubtedly a serious issue for Japan."

There has been a deviation between the market expectations at the beginning of the year and reality. Traders initially expected the Federal Reserve to lead global central banks into a rate-cutting cycle, while the Bank of Japan planned to go against the trend and break away from the ultra-low interest rate strategy. However, the robustness of the US economy and the stickiness of inflation kept the Federal Reserve on hold, making the slight rate increase by the Bank of Japan seem insignificant. Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, pointed out:

"People had expected the yen to appreciate with the rise in Japanese interest rates. But the reality is, we are still waiting."

How long can the US dollar remain strong?

Instead of waiting for the Federal Reserve to cut rates, the resilience of the US dollar has far exceeded market expectations.

Next, how long can the US dollar continue to be strong?

Industry insiders analyze that the current strength of the US dollar is not only due to the stickiness of US inflation and the corresponding delay in rate cuts but also reflects the market's reassessment of geopolitical risks and the fundamentals of various developed countries. In the medium to long term, the center of the US Dollar Index may have significantly shifted upwards, so it is not advisable to have high expectations for the downward movement of the US Dollar Index in the medium term.

The aforementioned individual also stated that historically, there is no necessary connection between the Federal Reserve's rate cuts and the depreciation of the US dollar. Since the 1980s, the Federal Reserve has had seven rate-cutting cycles. Observing the situation within half a year after the start of these seven rate cuts, it can be found that after two rate cuts, the US Dollar Index even appreciated significantly (in 1995 and 1998), only after two rate cuts did the US Dollar Index depreciate significantly, and after the other three rate cuts, the US Dollar Index remained largely unchanged.

Another viewpoint suggests that the French election and the pullback in US technology stocks may bring short-term downward pressure on the US dollar.Specifically, after three consecutive weeks of decline, the risk of the French election has been priced in, and the momentum for further depreciation of the euro has weakened, putting pressure on the US dollar's upward movement; secondly, as a major support for the US dollar, technology stocks led by Nvidia have recently experienced a significant correction, which will limit the US dollar's upward space.

When the yen breaks through the key psychological threshold of 163, Japanese authorities may intervene.

According to estimates by Citigroup, Japan has approximately $200 billion to $300 billion in funds available for further currency intervention actions. Senior foreign exchange strategist Vassilis Karamanis stated:

"If this week the US dollar to yen exchange rate breaks through the key psychological threshold of 163, causing volatility to exceed the 10% threshold, and simultaneously making the currency pair rise by about 10 yen compared to the low point on May 16th, then this situation may prompt the Japanese Ministry of Finance to intervene in the market to stabilize exchange rates and reduce market instability."

However, Dominic Konstam believes that as the Bank of Japan gradually normalizes its monetary policy, the main purpose of intervention is to slow down the pace of yen depreciation, rather than completely preventing it.

The head of macro strategy at Mizuho Securities USA pointed out that the problem the Japanese government faces in currency intervention is that they are "intervening in the wrong direction." Given the limited foreign exchange reserves, they cannot indefinitely invest huge sums of money to defend the yen.

This Friday, the core PCE inflation data that the Federal Reserve is focused on will be released, becoming a new focal point for the yen's trajectory. If core PCE inflation shows signs of slowing down, this could provide stronger support for the Federal Reserve to reduce borrowing costs this year, thus having a positive impact on the yen. Economists generally expect that the core PCE inflation rate, which excludes fluctuations in food and energy prices, will decrease.