When it comes to weakening the yen, currency speculators are the least of Japan's problems.
That's because when policymakers intervene to limit yen strength, as they did Monday, they square off against a formidable array of forces, including U.S. monetary policy, Chinese reserve managers and global investors from Texas to Tokyo united by one desire: to sell the U.S. dollar.
Investors and market analysts say that explains why prior efforts to weaken the yen against the dollar have failed and why the chances of success this time around are equally slim.
Japan intervened for the third time this year after the yen hit a record high of 75.31 per dollar, spending an estimated $65 billion and at one point pushing it some 5 percent lower.
More may be on the way, particularly after data last week showed speculators had doubled their bets in favor of the yen in the week to October 25, the highest since around the last time policymakers intervened in August.
Few expect much bang for the buck, though. Japan's move failed to push the dollar above 80 yen, and analysts at Credit Suisse forecast the dollar would soon return to 75-76 yen.
This is not necessarily about independent yen strength or speculative forces driving it up, though I appreciate there's an element of that, said Simon Derrick, a strategist at BNY Mellon in London.
Rather this is about broad-based dollar weakness. We are in the midst of a 10-year dollar downtrend and there are no signs the forces that have driven that are about to change.
Japan is an export-oriented economy and a strong yen makes products more expensive abroad -- the last thing needed for an already weak economy that was ravaged in March by a major earthquake, a tsunami and a nuclear disaster.
But Derrick notes that not even the severity of that disaster and the blow it dealt Japan's economy interrupted the dollar's steady decline against the yen.
In fact, the yen soared to what was then a record high against the dollar after the earthquake, prompting official intervention a few days later.
And the pattern is much the same elsewhere.
We've had something close to an existential crisis in the euro zone. We had the UK central bank print more money, he said. But as with the yen, both currencies are doing well against the dollar. That tells you a lot about the problems facing the dollar.
UP AGAINST THE FED
Though up broadly on Monday, the dollar has shed nearly 4 percent against six major currencies so far this year and is down more than 30 percent since the start of 2001.
One impediment has been loose monetary policy. The Federal Reserve recently pledged to hold interest rates at zero until at least 2013 and the debate about more easing has heated up.
Several policymakers have talked about adding to the $2.3 trillion the Fed has already poured into the financial system by resuming purchases of mortgage-backed bonds.
While U.S. economic data has shown signs of improvement in recent weeks, economists say growth remains well below the pace needed to make a real dent in a 9.1 percent jobless rate.
The Fed hasn't changed its stance, and that's really the problem, said Stephen Jen, president of London-based hedge fund SLJ Macro. It's more likely than not that we will see QE3 eventually, so (Japan) may have done this preemptively, knowing the Fed is probably gearing up to take action again.
Some also fear the euro zone is on the verge of recession, and with most countries being forced to tighten their fiscal belts to rein in large deficits, markets expect the European Central Bank to cut interest rates by year end.
As a result, Japanese investors may be content to park their money in Japanese government debt for safe keeping.
That matters, Jen said, because Japanese investors play a large role in driving the yen exchange rate. With interest rates at or near zero for more than a decade, retail investors typically seek higher returns abroad when risk appetite is high. But when opportunities fade, that money comes home.
The dollar is such an international currency that its trajectory is not dictated by American investors but that's not so with the yen, he said. As soon as Japanese investors have second thoughts about investments overseas, you have pressure in the dollar-yen exchange rate.
U.S. DEFICIT BACK IN FOCUS
There may be other reasons to avoid the dollar in the months ahead, especially if there is a breakdown in the politically tense negotiations about how to shave $1.5 trillion from the U.S. budget deficit over the next decade.
If a November 23 deadline comes and goes, that would trigger automatic cuts and, some fear, prompt another ratings agency to cut the United States top AAA rating.
If that happens, Derrick said China and other large holders of dollars could increase efforts to diversify their massive foreign exchange reserves, keeping pressure on the dollar and complicating Japanese efforts to weaken the yen.
Japan could declare a level beyond which it would not let the dollar fall. That's worked for Switzerland, which struggled for much of the year to contain massive franc appreciation against the euro as the euro zone debt crisis deepened.
But that probably wouldn't win Japan any friends at this week's summit of Group of 20 leaders in France.
Credit Suisse called such a policy for the world's fourth largest exporter and third largest economy, politically unacceptable globally, adding it could prompt other export-led Asian countries to follow suit, something both the U.S. and Europe are loath to see.
So this looks like a one-off unilateral intervention, said Mark McCormick, a strategist at Brown Brothers Harriman. Historical precedent suggests it will be ineffective.
(Editing by Chizu Nomiyama)