BlockBeats News, August 14th. The effectiveness of Japan's intervention in the foreign exchange market to boost the yen is being challenged. Market data shows that arbitrage traders are taking advantage of each round of yen rebound to rebuild short positions, forming a "intervention boosts yen - traders short on rallies" cycle.

Previously, the US-Japan joint intervention briefly pushed the yen higher, but less than two weeks later, the dollar approached 160 yen again. For arbitrage traders, official intervention actually provided a better selling price for the yen.

The trading logic is mainly based on interest rate differentials: investors borrow low-interest yen, then allocate it to high-yield assets. As long as the yen does not continue to appreciate, the interest rate differential income can cover some of the exchange rate risk. As of August 4th, hedge funds' yen short positions had been reduced by about half, but some institutions are re-establishing arbitrage trades using the yen as the funding currency.

Market data shows that the dollar has rebounded from around 157 to 159.43 against the yen. Some traders believe that if the dollar and US yields do not show a significant decline, arbitrage trading may push the dollar to yen back to retest 162.

Earlier, the Japan authorities were reported to have used billions of dollars to support the yen at the end of July, with the scale of intervention in a single day reaching around $53 billion, setting a historical record. However, large-scale intervention has not prevented the yen from approaching 160 again, indicating that the market's focus on the Japan-US interest rate differential and Japanese fiscal pressure still prevails.

Currently, the market is focusing on the Bank of Japan's next policy action. Traders are betting that the Bank of Japan may raise interest rates by 25 basis points in September or October, but analysts believe that as long as Japanese interest rates remain significantly lower than those of major economies such as the United States, arbitrage trades funded by yen may continue.