Strategists indicate that the coordinated intervention by Japanese and U.S. authorities, implemented roughly one month ago to support the yen, successfully tempered the currency’s short-term slide but has done little to alter the fundamental forces driving its prolonged depreciation.

Following the joint intervention, the yen appreciated from nearly a four-decade low of approximately 164 against the U.S. dollar to 155.23. However, this upward momentum proved unsustainable, with the currency once again approaching the 160 mark against the greenback.

The substantial interest rate differential between Japan and other major economies continues to weigh heavily on the yen, incentivizing investors to borrow yen at low costs and deploy those funds into higher-yielding overseas assets. Concerns over Japan’s fiscal outlook, compounded by elevated oil prices stemming from Middle East conflicts, have further exacerbated the downward pressure.

“The intervention was targeted at positioning rather than oil prices, U.S. Treasury yields, or the Japan-U.S. rate differential,” said Masahiko Loo, senior fixed income strategist at State Street Global Advisors. “For a sustained yen strengthening, the next phase requires more normalization measures from the Bank of Japan and a shift in hedging flow behavior.”

Overnight index swaps currently price in roughly an 80% probability of a rate hike at the Bank of Japan’s September meeting, with at least one action expected by October. BOJ Deputy Governor Ryozo Himino indicated in a Thursday speech that the central bank remains open to the possibility of a rate increase next month.

“With the market having largely priced in a September rate hike, a significant yen rally would require more than just a single policy adjustment,” noted Masayuki Nakajima, senior strategist at Mizuho Bank. “Investors need to gain confidence that the subsequent path of policy normalization will be steeper than currently anticipated.”

Market participants suggest that absent official intervention, the yen could have declined to near 170 against the dollar, given the persistent buildup of speculative bearish positions. While the intervention helped decelerate the yen’s slide against the dollar, its gains against other currencies, including the euro and the Australian dollar, have reversed to an even greater extent.