US GDP, core PCE, and non-farm payrolls all weakened, reigniting expectations of interest rate cuts and causing the dollar to fall; Japanese intervention in the currency market caused significant yen volatility; repeated geopolitical disturbances in the Middle East affected oil prices; precious metals experienced a surge; and most global stock markets rebounded, with US tech stocks leading the gains.

The US dollar index fell sharply after Friday's release of July's non-farm payrolls, which showed a loss of 23,000 jobs in the US economy, compared to market expectations of an 80,000 increase; June's data was also revised down from 20,000 to 20,000, and the annualized average hourly earnings growth slowed to 3.2%. The index broke below the 100.00 level to a one-month low of 99.41. Markets that had been betting on a hawkish stance from the Federal Reserve in late July reversed this expectation after the non-farm payrolls data was released. Wednesday's Consumer Price Index (CPI) will determine whether this repricing continues or stalls.

The collective weakness in multiple US economic, inflation, and employment data points was the core of asset pricing this week, leading to a dollar decline, a significant rebound in gold and silver, and simultaneous benefits for risk assets such as stocks. Meanwhile, two major uncertainties—whether Japan will intervene in the yen again and whether Middle Eastern geopolitical tensions will substantially cut off oil shipping—will continue to disrupt market trends next week. Currently, the short-term asset performance ranking is: precious metals > US tech stocks > European stocks > A-shares and Hong Kong stocks > crude oil (weekly decline).

The People's Bank of China (PBOC) has not only increased its gold reserves for 21 consecutive months, but also continued its prudent strategic gold purchase operations despite gold prices falling nearly 30% from their historical highs at the beginning of the year. The PBOC's large-scale gold purchases marked the largest monthly purchase in July since 2023; the latest reserve data shows that the PBOC purchased 20 tons of gold in July, the largest monthly increase since October 2023. Since March, the pace of the PBOC's monthly gold purchases has accelerated.

Last week's market performance review:

US stocks continued their upward trend on Friday, with the S&P 500 and Nasdaq indices rising again. Investors interpreted the unexpected drop in July's non-farm payrolls as a signal that the Federal Reserve would not need to raise interest rates further in the short term, driving up risk assets. The S&P 500 rose 0.62% to close at 7757.64, a record high; the Nasdaq Composite performed even better, rising 1.3% to close at 26690.62; and the Dow Jones Industrial Average rose 151.83 points, or 0.28%, to close at 54036.93.

Last week, after the latest US jobs data fell short of expectations, market bets on a Fed rate hike this year decreased significantly, pushing gold futures up by about 2% on Friday. Data shows that gold has risen more than 8% cumulatively over the past five trading days. The July US jobs report showed clear signs of a cooling labor market, weakening market expectations for further tightening of monetary policy by the Fed.

Following the release of the jobs data, US Treasury yields fell, putting pressure on the dollar and providing support for gold's rise. Another significant driver of gold price increases came from increased buying by Asian investors, particularly Chinese investors, while continued inflows into gold ETFs further strengthened market support.

Silver prices rose to over $63,500 per ounce on Friday, a seven-week high, as the market reconsidered the possibility of a Federal Reserve rate hike this year. Meanwhile, industrial demand for silver also supported buying, as China's silver ore imports surged 62.5% year-on-year in June to 219,000 tons. This figure is consistent with the expansion of solar panel and grid production. Nevertheless, the continued risk of a rebound in energy prices keeps silver prices relatively close to the seven-month low of $55 per ounce reached on July 16.

Last week, the US dollar index suffered a double blow – it faced passive selling pressure from the intervention in the yen and was hit by weak domestic economic data. The intervention itself put pressure on the dollar. As the US bought yen by selling euros, coupled with market expectations of continued coordinated US-Japan intervention, the dollar index hit a one-and-a-half-month low of 99.41 before the weekend. In the following days, although the dollar index stabilized somewhat, it failed to effectively return above the 100 mark; the real blow to the dollar came from Friday's release of the US July non-farm payrolls report. Data showed that the US economy unexpectedly lost 23,000 jobs in July, while the market had expected an increase of 80,000.

Against the backdrop of a generally weakening dollar, non-US currencies showed mixed performance. The euro emerged as one of the winners this week. The euro closed at 1.1557 against the dollar on Friday, up 0.3%, and up about 0.29% for the week. The euro had touched a one-and-a-half-month high of 1.1581 last week. The euro's strength benefited partly from the weakening dollar, and its short-term upside potential remains to be seen. Driven by the strong intervention of the US and Japan, the yen did indeed experience a rapid rebound. The dollar/yen pair was pushed down from above 163 to a three-month high of 155.23. However, the market's "lack of enthusiasm" quickly became apparent. The impulsive rise brought about by the intervention failed to sustain, and the yen began to gradually decline. However, following the release of disappointing non-farm payroll data, the yen rebounded again on Friday. The dollar closed at 157.78 against the yen in late New York trading on Friday, a slight increase of about 0.10% for the week.

The pound's performance was relatively flat. The pound traded within a narrow range of 1.3400 to 1.3500 against the dollar this week. It closed at 1.3490 on Friday, essentially unchanged from the previous Friday's close. The market is awaiting further guidance from UK economic data and the US non-farm payroll report. The Australian dollar held above the 0.7000 level this week and trended higher, reaching a high of 0.7077 on Friday, a new high in nearly a month and a half, before closing at 0.7064, a weekly gain of about 0.36%. Geopolitically, the ongoing tensions between the US and Iran remain a potential source of disruption in the foreign exchange market. News that Iran planned to ban US and Israeli ships from passing through the Strait of Hormuz initially triggered market concerns, but the uncertainty surrounding the negotiation process kept investors cautious.

Last week, international oil prices fell sharply due to rising expectations of easing tensions in the Middle East. US crude oil fell more than 10% to around $76.50 per barrel, while Brent crude fell 9.44% to $88.22 per barrel, both hitting near three-week lows. Progress in the Strait of Hormuz negotiations dominated market sentiment; oil prices initially plummeted due to diplomatic hopes, but rebounded due to risks such as Iran's proposed ban on US and Israeli ships and Houthi attacks, resulting in significant volatility. The market will continue to closely monitor the implementation of the agreement and the evolution of regional conflicts.

Bitcoin's recent price performance has been lackluster, trading around $64,000 on Friday (August 7th). The limited market volatility has led many traders to turn their attention to other more volatile assets. However, from a technical analysis perspective, this cryptocurrency may be forming a bullish pattern: if confirmed, the price could potentially target $76,000. The current chart pattern attracting market attention is a reverse head and shoulders bottom formation. This pattern typically appears at the end of a downtrend, not in the middle, and consists of three lows followed by two rebounds: the deepest middle low represents the strongest bearish sentiment; subsequent shallower lows often indicate that selling pressure is beginning to weaken. If the price breaks upward through the neckline connecting the two rebound highs, it is generally considered a confirmation of a trend reversal.

With falling oil prices and disappointing non-farm payroll data, traders ruled out a September Fed tightening expectation, causing yields to decline across the board. This suggests that market participants have begun to rule out the possibility of a swift resolution to the US conflict, which could reduce the necessity for a Fed rate hike. The yield on the 10-year US Treasury note was 4.651%, down nearly 3 basis points, as the weaker-than-expected jobs report reduced market bets on a Fed rate hike. Non-farm payrolls unexpectedly fell by 23,000 last month, while the May and June figures were also significantly revised downward, totaling a decrease of 103,000.

Market Outlook for This Week:

This week {August 10-14}, the market will face an extremely dense window of data verification. Besides monetary and consumer inflation indicators from China and the US, multiple variables such as US Treasury auctions, the OPEC monthly report, and statements from Federal Reserve officials are intertwined, making the market highly susceptible to short-term impulses and expected corrections.

The Reserve Bank of Australia (RBA) will announce its interest rate decision (expected to remain at 4.35%); Bullock will hold a press conference. Key focus: Pay attention to whether the RBA retains the "possibility of further rate hikes."

US July CPI; US July PPI. Key focus: The US July CPI is the highest risk point of the week, directly determining the pricing of the Fed's rate cut/no rate cut/the magnitude of the cut in September; for crude oil, pay attention to OPEC's revisions to its demand forecasts for the second half of the year.

Note whether gold exhibits a "dollar rises, gold doesn't fall" or "US Treasury yields rise, gold follows suit" phenomenon after the CPI release. This divergence often indicates that the market is trading on "reflation" or "geopolitical risk/safe-haven attributes," rather than simply trading on the Fed's interest rate policy.

Risk Warnings: Key Data and Policy Variables Require Close Monitoring

1. US Treasury Yield Risk: Long-term US Treasury yields are fluctuating at high levels. A further rise would suppress global stock and gold valuations, exacerbating volatility in the stock-bond-currency linkage.

2. Geopolitical Inflation Risk: Escalating conflicts in the Middle East could rapidly push up oil prices, reigniting inflation expectations and forcing central banks to maintain high interest rates for longer, negatively impacting equities and positively impacting safe-haven assets.

3. Swinging Fed Expectations: Weak non-farm payroll data temporarily cooled expectations of interest rate hikes, but inflation data still has room for fluctuation. Market expectations will switch back and forth between "interest rate cuts/maintaining high interest rates," amplifying volatility in foreign exchange and commodities.

4. Risk of Realizing US AI Stock Performance: The highly valued AI sector is highly sensitive to earnings reports. Lower-than-expected capital expenditures could trigger a rapid valuation correction, spilling over and affecting global growth stock sentiment.

Conclusion:

Global markets have entered a period of high volatility: Multiple variables, including geopolitical factors, Fed policy, earnings reports, and domestic economic data, are converging, limiting unilateral trending markets and making volatility the dominant theme. Whether in stocks or commodities, the risk of chasing highs has significantly increased. This week, attention will be focused on US July CPI inflation data, China's July CPI/PPI, US Treasury bond issuance plans, developments in the Middle East situation, and the release of global corporate interim earnings reports.

Federal Reserve internal divisions widen; where will the dollar go?

Federal Reserve internal divisions are widening: San Francisco Fed President Daly supports a wait-and-see approach, advocating for more data collection before September; Governor Cook has clearly stated his readiness to support a rate hike if inflation does not decline. Previously, three policymakers had voted against maintaining the current interest rate. With Chairman Warsh remaining silent, the market is highly uncertain about the direction of the September meeting. The dollar lacks a unilateral driver in the short term and is expected to continue its range-bound trading.

Last week, the dollar index fluctuated narrowly, currently trading near 100.00. The dollar index is temporarily locked in a sideways trading pattern, with two Fed officials releasing drastically different policy signals, exacerbating market divergence.

San Francisco Fed President Daly expressed "full support" for last week's decision to keep interest rates unchanged, advocating for gathering more data to assess the inflation outlook before the September meeting; while Fed Governor Cook explicitly stated that she would support a rate hike if inflation remains too high.

These statements, coupled with the previous vote by three policymakers advocating for a rate hike, have further complicated market expectations regarding the Fed's interest rate path.

Policy Background: Three Opponents and Widening Divergence

Last month, the FOMC voted 9-3 to maintain the target range for the policy rate at 3.50%-3.75%, with three policymakers advocating for an immediate rate hike to curb inflation.

In recent days, officials including New York Fed President Williams and Philadelphia Fed President Paulson have indicated their willingness to support a rate hike if necessary.

Against this backdrop, Fed Chairman Warsh has consistently refused to provide guidance on the future path of interest rate policy and has rarely commented on how monetary policy decisions will be made. This pattern of "the chairman's silence and officials' pronouncements" is exacerbating market uncertainty regarding the Fed's internal policy direction.

Internal Disagreements Coupled with Chairman's Silence: Dollar Lacks Directional Driver

The widening internal divisions within the Federal Reserve are adding uncertainty to the short-term direction of the dollar index. With Chairman Warsh remaining silent, the market cannot obtain clear directional guidance from the Fed, making the dollar's trading logic more reliant on economic data itself.

If subsequent data shows inflation continuing to exceed the target and employment remaining strong, the hawkish logic will prevail, providing upward support for the dollar; conversely, if inflation moderately declines, the wait-and-see approach will be validated, and the dollar may face mild downward pressure.

Currently, the dollar index is trading around 99.70, lacking the momentum for a directional breakout. The market is awaiting clearer inflation signals or geopolitical developments to break the deadlock. In the short term, the dollar index is expected to continue its range-bound trading pattern, with each key data release before the September FOMC meeting potentially acting as a catalyst for a directional choice for the dollar.

Conclusion:

The Fed's July meeting maintained the target range for the federal funds rate at 3.50% to 3.75%. The core policy contradiction remains the balance between sticky inflation and slowing labor demand. While reduced layoffs lower the probability of a sudden deterioration in the employment situation, the contraction in service sector employment and the slowdown in private sector hiring are insufficient to support a judgment of a significant warming of the labor market.

Therefore, the impact of layoff data on the US dollar index is more akin to a risk correction than a trend signal. The data weakens recession fears triggered by concentrated corporate layoffs, but it does not change the fact that new job growth is weak. Short-term dollar fluctuations will still be influenced by interest rate expectations, energy prices, interest rate differentials of major currencies, and safe-haven demand.

Middle East Supply Support; US Oil Price Fundamentals Tug-of-War

When crude oil prices rise, the trend is key; when they fall, the fundamentals are crucial. Currently, the overall fundamentals of crude oil are as follows:

Currently, geopolitical tensions in the Middle East continue to disrupt the global energy supply chain. Shipping risks in the Strait of Hormuz are high, and regional shipping is hampered. However, the UAE, through its diversified transportation strategy, has countered the trend by stabilizing its crude oil exports, providing a crucial supply buffer for the global oil market.

This, coupled with record-high US diesel exports and continuously declining domestic inventories, has created a new supply and demand dynamic, continuously reshaping the logic of global oil product trading and becoming the core driver of recent oil price volatility and structural market trends.

Middle East Supply Resilience Stands Out: UAE Defies Global Crude Oil Supply Challenges

The ongoing US-Iran standoff and the persistently high risk of attacks on ships in the Strait of Hormuz have restricted seaborne exports for most Middle Eastern oil-producing countries.

Against this backdrop, the UAE has become a core pillar of regional supply resilience. Over the past two months, its crude oil exports have led all global oil-producing economies, effectively offsetting pessimistic market expectations of energy supply shortages and providing a valuable buffer for the global energy market, which is mired in structural crisis.

To mitigate geopolitical risks in the Strait, Abu Dhabi National Oil Company (ADNOC) has adopted a special export strategy, extensively utilizing "black ship" operations (ships operating under the guise of automated identification systems) to conduct cross-border transportation.

Because such covert transportation is difficult to fully track in maritime databases, the industry generally believes that the actual scale of UAE crude oil exports is significantly higher than publicly available monitoring data.

According to anonymous traders, since June, ADNOC has completed seven large-scale crude oil tenders, selling over 130 million barrels of crude oil. This volume is roughly equivalent to the monthly total demand of Japan, Asia's third-largest crude oil consumer, demonstrating a significant supply support capability.

Thanks to its flexible transportation strategy, the UAE became the only oil-producing country in the Middle East to restore its seaborne crude oil exports to pre-war levels in June and July, with its exports primarily flowing to refineries in key Asian countries such as China and Japan.

Its core transportation plan includes multiple alternative channels. Besides high-risk shuttle shipping and transshipment via the Gulf of Oman, it also utilizes its nationwide pipeline network to directly bypass the Strait of Hormuz, minimizing the risk of disruptions caused by geopolitical conflicts.

In contrast, while neighboring oil-producing countries like Iraq and Kuwait have engaged in sporadic transshipment operations, the scale of these operations is limited and insufficient to effectively supplement supply.

Thanks to the UAE's strong support, the global crude oil supply shortage has eased, effectively suppressing the momentum for a sharp rise in oil prices.

Meanwhile, the UAE's energy exports have diversified. In addition to crude oil, liquefied natural gas (LNG) exports remain smooth, continuously supplying a stable source of energy to the global market.

Leveraging its market dominance, the UAE continues to increase its influence in crude oil pricing. During last month's international oil price decline, Abu Dhabi National Oil Company directly demanded that counterparties offering lower prices raise their bids, stabilizing the regional crude oil pricing benchmark. However, it has yet to advance the implementation of its Murban crude oil futures benchmark contract.

Regional Landscape Underlying Uncertainties: Navigation Uncertainty Increases UAE Export Dependence

It is worth noting that the regional supply landscape remains uncertain. The ongoing protracted negotiations between the US and Iran, and the lack of a navigation agreement in the Strait of Hormuz, mean that even if a temporary navigation agreement is reached, the short-term special transshipment model will continue.

Meanwhile, Saudi Arabia's traditional alternative export routes continue to face pressure. Its pipeline export route, relying on the Red Sea port of Yanbu, has recently been frequently harassed by Houthi attacks, significantly reducing the stability of the route. This may force global refineries to further increase their reliance on UAE crude oil, continuously reshaping the Middle East crude oil export landscape.

US Diesel Exports Surge: Record High, Overdrawing Domestic Inventory Reserves

In addition to the changes in the Middle East supply side, US oil product export data has once again surprised the market, becoming a significant variable in global energy supply and demand. Driven by a global oil shortage triggered by the Middle East energy crisis, US diesel exports hit a record high last week, averaging over 1.8 million barrels per day, breaking the previous record set this spring.

From a supply and demand perspective, the US diesel market is currently in a tight balance of "high exports, low production, and low inventory."

Data from the US Energy Information Administration shows that while US diesel exports have surged, domestic diesel production and inventories have declined simultaneously. Current diesel inventories are 12% lower than the five-year average, and are in historically low ranges. Bloomberg data further adds that this export boom is not a short-term spike; US diesel exports had been consistently maintained at a high level of 1.5 million barrels per day for the previous five weeks. This continuous surge in exports has been consuming domestic inventories, which are now at their lowest level since 1996.

The core destination for US diesel exports is the European market. Due to the ongoing impact of energy transition policies, Europe's domestic refining capacity continues to shrink. Coupled with slower-than-expected progress in electrification of transportation across the region, the regional fuel supply-demand gap continues to widen, making it highly reliant on US diesel imports to fill the gap.

Continued exports have depleted US domestic oil reserves, and with the approaching winter heating season in the Northern Hemisphere, market supply and demand risks are accumulating further. Diesel is a core feedstock for heating oil, and rising global heating demand in winter means the already tight diesel supply and demand situation will tighten further.

Subsequent Risk Forecast: Maintenance Season Combined with Demand Recovery, Oil Premiums Continue to Support Oil Prices

More importantly, August to October is the traditional maintenance season for US refineries. The concentrated maintenance of refinery equipment will further suppress oil production. Under the quadruple pressure of shrinking production, low inventories, rising demand, and high export growth, US diesel and related oil product prices are more likely to rise than fall.

Although refineries are currently operating at overcapacity, which can temporarily postpone maintenance schedules, long-term maintenance demand cannot be avoided. The certainty of subsequent oil supply contraction is strong, which will continue to support global oil premiums and provide a bottom support for the overall crude oil market.

Conclusion:

Overall, the core logic of current global crude oil trading exhibits a dual characteristic: In the short term, the UAE's counter-trend support for Middle Eastern supply alleviates market expectations of extreme shortages, suppressing significant upward potential in oil prices;

In the medium to long term, unresolved Middle Eastern geopolitical risks, historically low US oil product inventories coupled with supply contraction during the maintenance season, and a steady recovery in global demand, combined with multiple factors, make it difficult to reverse the tight supply-demand balance in the global oil market. Oil prices will generally maintain a volatile but upward trend, with structural upside risks continuing to accumulate.

After four consecutive days of gains in gold prices, what real information do technical indicators reveal?

Last week, spot gold strengthened for several consecutive trading days, rising to above $4,350 per ounce at one point, reaching a seven-week high. Earlier, gold prices saw a single-day increase of over 4%, with a weak dollar, declining bond yields, and falling energy prices jointly driving funds to reassess the macro-pricing of gold.

A weak dollar, declining bond yields, and falling energy prices jointly drove funds to reassess the macro-pricing of gold. Meanwhile, Federal Reserve officials continue to emphasize inflation risks, presenting the market with a complex and nuanced combination: cautious policy statements, cooling interest rate expectations, and yet, no comprehensive easing in actual financial conditions.

The core variables driving the gold rebound have shifted.

Previously, gold faced significant pressure from rising energy prices, rising inflation expectations, and increasing real yields. Since gold itself does not generate interest, the opportunity cost of holding gold typically increases when real bond returns rise significantly. Recent market developments indicate that a weaker dollar and declining nominal yields are easing this pressure, shifting the short-term pricing focus of gold from a single interest rate factor to the combined effect of the dollar, energy prices, and policy expectations.

The 10-year US Treasury yield has fallen from approximately 4.75% recently to around 4.60%, and market expectations for a September rate hike by the Fed have also declined from higher levels. The decline in crude oil prices has alleviated concerns about further spread of energy inflation, preventing the market from pricing solely around the assumption that "high inflation inevitably corresponds to higher interest rates."

This does not mean that inflationary constraints have disappeared. The Federal Reserve's July monetary policy report indicated that the personal consumption expenditures price index rose 4.1% year-on-year as of May, significantly higher than the long-term target of 2%. Short-term inflation expectations were affected by the energy shock, but long-term expectations generally remained within the range common over the past decade. This presents a dual constraint for policymakers: preventing short-term price pressures from solidifying while avoiding an excessive shock to already cooling demand.

Cooling policy expectations do not equate to a shift in policy stance.

The Fed's current target range for the federal funds rate remains at 3.50% to 3.75%. The latest official statements still describe inflation as above target and emphasize the responsibility for price stability. Some officials have recently stated that they are prepared to support further interest rate hikes if inflation does not continue to ease. Therefore, the recent rebound in gold prices reflects more of a market repricing of the probability of interest rate hikes, the strength of the dollar, and the yield curve, rather than a clear shift to an easing monetary policy.

It is worth noting that while long-term inflation expectations in financial markets are relatively stable, households and businesses are more sensitive to recent price pressures. When these two types of expectations diverge, policy communication becomes significantly more difficult. If policymakers emphasize long-term stable expectations, the market may lower its estimates of consecutive interest rate hikes; however, if actual inflation, wages, and service prices remain persistently high, the yield curve may re-induce additional tightening risks.

Reserve demand provides structural support to the market.

Gold's medium- to long-term pricing is not entirely dependent on short-term interest rates. A June survey by the World Gold Council showed that 89% of surveyed reserve managers expect global central bank gold reserves to continue increasing over the next 12 months, and 45% plan to increase their institutions' gold holdings, the highest percentage since the survey began. Reserve allocation typically features long cycles, low turnover rates, and relatively limited price sensitivity, thus reducing the gold market's complete dependence on short-term capital flows.

This structural demand does not necessarily mean a decrease in gold volatility. Macroeconomic funds will continue to rapidly adjust their exposure around the US dollar, real yields, energy prices, and policy meetings. Reserve demand is closer to the underlying liquidity sources in the market, while short-term prices may still be amplified by futures positions, options hedging, and event risk.

Technical Structure Shows Rapidly Escalating Volatility

Gold had been trading below the Bollinger Band's middle line for an extended period. After consolidating at lower levels, a large bullish candlestick appeared, with the price quickly breaking through the middle band and touching the upper band's outer edge. The MACD histogram has significantly expanded, with the fast line crossing above the zero line, but the slow line remains in negative territory. This combination reflects a rapid improvement in short-term momentum, while medium-term trend indicators have not yet completed their synchronized correction. The time lag between price, moving averages, and momentum indicators suggests that the current phase is more accurately defined as a period of volatility expansion and structural reassessment, rather than a fully confirmed stable trend.

Furthermore, large daily fluctuations significantly amplify the true range and make the Bollinger Bands, momentum indicators, and short-term moving averages more sensitive to new market movements. Going forward, key technical observations will focus on whether volatility gradually converges, whether the trading center stabilizes, and whether the middle band slope and the MACD slow line show sustained changes.

Conclusion:

Gold still faces pressure from weakening central bank gold purchases, weak physical demand in Asia, and the possibility that the Federal Reserve may maintain high interest rates or even raise them. If the agreement between Iran and Oman is finalized and shipping resumes, further declines in oil prices will help cool inflation, thus opening a window for interest rate cuts. Conversely, if negotiations break down or geopolitical conflicts escalate again, safe-haven buying may provide short-term support for gold prices, but a rebound in energy inflation could strengthen expectations of interest rate hikes, creating a double squeeze on gold.

Investors need to closely monitor the progress of US-Iran negotiations and further statements from Federal Reserve officials. Only when interest rate cut expectations are truly priced in and geopolitical risks move from a "pause" to a substantial easing will gold be able to shake off the gloom of the past six months and find new upward potential. Before that, any single-day surge is more like a correction of previous overselling, rather than the start of a new bull market.

US Intervenes to Support Yen; The Truth Behind the Joint Market Rescue!

Last week, the US and Japan jointly bought yen for the first time in 28 years to counter the yen's fall to a near 40-year low against the dollar. If the scope is expanded to the G7 level of coordinated action, this marks the first time the US and Japan have engaged in such high-level coordinated exchange rate intervention since the G7's actions to weaken the yen following the 2011 Great East Japan Earthquake. This necessitates participation and the introduction of the FIMA repurchase mechanism. The US's sale of euros instead of dollars during the intervention has raised questions. While this measure is effective in the short term, a substantial tightening of monetary policy by the Bank of Japan is still needed to reverse the yen's long-term decline.

The backdrop to this action is that the yen-dollar exchange rate fell to a near 40-year low of 163.95 yen to the dollar in July 2026. Faced with the limited effectiveness of unilateral intervention, Tokyo finally received help from Washington. However, the underlying logic of this joint action spanning 28 years goes far beyond simply "helping Japan"—the stability of the US Treasury market, potential risks in the global bond market, and the profound evolution of the US-Japan alliance are all intertwined in this exchange rate battle.

The Origins of the Joint Intervention: The Yen Falls to a 40-Year Low

The recent weakness of the yen has caused considerable anxiety in Tokyo. In July 2026, the yen fell to its lowest level against the dollar in nearly four decades. Prior to this, Japan's Ministry of Finance had already injected a record 11.7 trillion yen (approximately US$73.5 billion) between April and May 2026 to unilaterally buy yen and sell dollars. However, Tokyo alone could not reverse the yen's continued weakening trend.

The root of the problem lies in the significant interest rate differential between the US and Japan. In this environment, investors borrow low-interest yen and then buy high-yield dollar assets—the so-called "carry trade"—continuously putting downward pressure on the yen. Intervention can slow the decline, punish speculative behavior, and send official warning signals, but it cannot overturn economic laws.

It is precisely in this predicament of unilateral intervention proving ineffective that Tokyo turned to Washington, which unexpectedly offered assistance.

Washington's calculations: protecting the Treasury market and self-preservation

Why did the US suddenly decide to join forces with Japan to buy yen after decades? This is the core question that the market is most concerned about. Washington's primary consideration is not simply "alliance," but a carefully calculated "self-protection" calculation.

The potential risks in the US Treasury market are the biggest variable. Japan is the largest foreign holder of US Treasury bonds. If Tokyo were to massively sell off US Treasury bonds to raise funds for intervention, it would inevitably push up US Treasury yields, thereby disrupting the stability of the US funding market. This "may be one of the key reasons for US involvement," and it contains "an element of self-protection"—market volatility driven by Japan's aggressive fiscal policy could spread to the US Treasury market, thus shaking the foundation of the dollar.

The FIMA repurchase facility has become a key institutional arrangement. It is noteworthy that on August 4, 2026, the Japanese Ministry of Finance explicitly stated its plan to use the standing FIMA repurchase mechanism established by the Federal Reserve in future interventions. This mechanism allows foreign central banks to obtain dollar liquidity without directly selling US Treasury bonds. This signal "may be more important than the intervention itself"—it tells the market that Japan can raise dollars without selling its own bonds, thereby alleviating market concerns that Japanese intervention might put pressure on the US funding market by selling short-term US Treasury bonds.

The spillover effects of the global bond market cannot be ignored. The continued weakness of the yen could trigger further selling of Japanese government bonds, and higher yields on these bonds could spill over into the global bond market. Meanwhile, the US is also grappling with rising long-term borrowing costs—the yield on the 10-year US Treasury bond has risen by nearly 57 basis points since the beginning of 2026. Stabilizing the yen, in a sense, is also defusing potential risks for the global bond market.

The Mystery of the Intervention: Why Sell Euros Instead of Dollars?

One detail of this intervention has caused widespread confusion in the market—reportedly, the US did not directly sell dollars to buy yen, but rather sold euros and bought yen through the Federal Reserve Bank of New York. Traditionally, coordinated exchange rate interventions are financed using dollar assets. This approach "is confusing the market and will prove counterproductive." This workaround weakens the effectiveness of US participation, as the market will inevitably wonder why the US didn't directly buy yen with dollars.

However, from another perspective, this operation may precisely reflect Washington's prudent considerations—to provide support for the yen without further strengthening the dollar, while avoiding direct depletion of dollar reserves. Regardless, this unconventional approach has certainly left more room for market interpretation.

Deterrence and Effectiveness: How Far Can the Intervention Go?

Judging from market reactions, the short-term effects of this joint intervention were immediate. After reaching a high of 163.95 against the yen last Thursday, the exchange rate touched a low of around 155.23 last week, but has since rebounded to around 156. The US involvement has "significantly enhanced" the effectiveness of the foreign exchange intervention, as the market has more reason to believe that the authorities will act again if necessary.

However, most analysts are cautious about the long-term effects of intervention. Historically, joint US-Japan intervention in the yen has typically occurred near key turning points in the USD/JPY exchange rate, but a true trend reversal often takes much longer. For example, the joint intervention in June 1998 caused the USD/JPY to fall from 146 to 136 within three weeks, but the long-term trend wasn't truly broken until more than two months later (August), when the underlying logic of the Asian financial crisis changed, with the yen briefly falling to around 112 in October 1988.

Meanwhile, intervention can buy time, but it cannot change the long-term trajectory: "Intervention may affect the next few months. The Bank of Japan's normalization and hedging flows will determine the next few years." As long as Japanese government bond yields are artificially suppressed, the yen remains overvalued and needs to fall—intervention ultimately cannot reverse the depreciation trend driven by the Japanese bond market.

Conclusion:

The joint purchase of yen by the US and Japan, the first such move in 28 years, is both an emergency rescue of the financial market and a concentrated projection of geopolitical economic games. Defending the US Treasury market, easing pressure on global bond markets, fulfilling alliance commitments, and sending geopolitical signals—multiple objectives intertwined in a single intervention. However, no matter how powerful the coordinated intervention, it is ultimately just a tool to "buy time." The long-term trend of the yen exchange rate ultimately depends on whether the Bank of Japan can continue to normalize monetary policy and whether the US-Japan interest rate differential can truly narrow. For investors, the next act of this grand financial game has only just begun.

Overview of Important Overseas Economic Events and Matters This Week:

Monday (August 10): Eurozone August Sentix Investor Confidence Index; Canada National Economic Confidence Index; Bank of Japan releases summary of opinions from July Monetary Policy Meeting Board Members.

Tuesday (August 11): Australia: Reserve Bank of Australia Cash Rate; July NFIB Small Business Confidence Index; RBA Governor Bullock holds monetary policy press conference; Japan: Mountain Day holiday.

Wednesday (August 12): Last Week's API Gasoline Inventory Change (in thousands of barrels); US July Unadjusted Core Consumer Price Index (YoY); US July Seasonally Adjusted Core Consumer Price Index (MoM); US July Producer Price Index (YoY).

Thursday (August 13): Japan July Domestic Corporate Goods Price Index (YoY); UK June Goods Trade Balance (in million of pounds); UK June Industrial Production (YoY); UK Q2 GDP Preliminary Estimate (QoQ). July Producer Price Index (Year-on-Year)

Friday (August 14): Eurozone June Seasonally Adjusted Trade Balance (Billion Euros); Eurozone Q2 GDP Revised (Quarterly); US July Retail Sales (Monthly); US August University of Michigan Consumer Sentiment Index (Preliminary)

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