US Treasury undertakes historic intervention in yen market
ft.com65 points by 23pointsNorth 4 hours ago
65 points by 23pointsNorth 4 hours ago
Propping up the yen may be more helpful for the US than if Japan hikes interest rates which is on the table (Google ’bring money home‘). The carry trade buying treasuries with debts incurred in yen has been a steady source for US funding. Eventually it will happen but this ‚supportive‘ move may just shift it past November.
Japan holds a huge amount of US treasuries, and I guess was considering a mass sell off to raise cash to defend the Yen.
US treasury bond yields are already dangerously high for the US and Japan selling treasuries would push yields up even higher, and could trigger more panic selling from others.
I guess this is Bessent's scheme to try and kick that can down the road.
Japan has to sell off its bonds to get dollars to buy oil with since oil is so expensive. I wonder why that happened.
No. That has nothing to do with this.
Setting aside the obvious fact that the JCB does not buy oil, they’ve been engaged in a (futile) currency defense scheme since long before the Iran conflict. This is purely about the interest rate spread.
> kick that can down the road
With two left feet and a couple of swings and misses, the can isnt in much danger.
Surely he isn’t competent enough to do anything else.
Even if he was, it's not like he could control the rampaging elephant in the room.
Wait, no way!
Someone posted a zoomed up photo of a US official (can't recall who) of a notepad a few days ago saying "To do: Buy Yen 5Y - 10Y" or something similar
It was US Treasury Secretary Scott Bessent
https://www.reuters.com/world/asia-pacific/bessents-to-do-li...
Which is hilarious because 5-10 billion dollars worth of Yen is not going to do much in the grand scheme of things. It’s a speed bump not a stop sign.
Bessent wrote that note very large and intentionally left it visible in hopes that it would be photographed and the market would do the work for him. If the market believes the US Government is going to spend $10B on JPY, it will happily price it right in without the US having to spend a penny.
Japan is the sort of canary in the coal mine.
so yeah if the yen pops - then the u.s will too given all the 'a.i' shenanigans & the market manipulation with oil.
but I guess the US Treasurer is willing to manipulate the market till they can't.
Japan is a what? They've been dumping billions of dollars and trillions of yen into their economy since the 1990s. How is this any different than the past thirty years of intervention? I stg you guys. I get that ginning up a conspiracy gives you agency in a powerless world but come on.
While I don't agree with the phrasing of the above comment it doesn't seem factually wrong?
The article states similar coordinated currency manipulation (to instead weaken the yen) happened in 2011 after the Tohoku earthquake. There was a bunch of mutual currency manipulation in the 1990s by the US and Japan.[1] In the 1980s there was the Plaza and Louvre accords. [2][3] And you can find more going all the way back to end of World War 2.
The main interesting difference in the current intervention is that the US is selling euros (not dollars) to buy yen.
[1] https://www.nber.org/papers/w8914
If you can manipulate the market why not do it?
Literally no one benefits from the alternative.
Manipulation of the market never comes for free.
You just delay, and render unpredictable, the eventual reckoning, for short-term benefits.
It will be interesting to see who’s gonna blame the free market when that day arrives.
> You just delay, and render unpredictable, the eventual reckoning, for short-term benefits.
After a century, those short-term benefits add up to a long term benefit.
> Literally no one benefits from the alternative.
Future you might disagree with present you. But even if we disregard time, I think millions of consumers would benefit from the opportunity to have competitive markets again. If an actual economic forest fire was allowed to burn, we might eliminate some of the too-big-to-fail corruption and oligopoly that is the norm now and provide space for new seeds to grow.
You can’t have competition forever. At some point someone wins decisively, and then there is only the illusion of competition.
We already have anti-trust and other regulation to manage this problem, we simply need to use it.
There's no end of competition, the world changes, companies bloat and make bad choices, smaller competitors can react and change faster - it's only in our corporate hegemony that we don't consider that a viable alternative.
Can anyone steel man the “this isn’t a big deal” side of this?
On x and reddit all I see are sky is falling posts.
Best I can do is point out that much of American economic history for the past 300 years has been stumbling from crisis to crisis, and somehow we muddle through. A good book to understand this is https://a.co/d/0aTW4L6D
Here’s the likely rationale from one of the FT comments:
“It looks like the Japanese economy is on the BoJ [Bank of Japan] ventilators. I mean, the BoJ is the largest single holder of Japanese equities, government bonds (JGBs) and currency (JPY). It’s likely that the BoJ is printing more yen to finance Japan Inc, which in turn is probably the driving force behind inflation.
[…]
BoJ is the largest foreign bank holding USTs [US treasuries], around $1.14tn, it’s likely that they would have had to sell some treasuries to finance JPY purchases. My view is that, this scenario is not ideal for the US Treasury – particularly right now with the UST yield curve steepening – hence they had to “return the favour” by selling EURJPY”
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tl;dr in my layman interpretation: US helps Japan by selling (shorting) EU in a debt-exchange triangle. The US didn’t have much choice, as Japan would have sold USD, which they hold plenty of, to finance their spending spree. They just have to hope their bet on JPY vs EUR pays off in the long-term.
Why would the sky be falling? Getting the world's largest economy to prop up your own economy is kind of the point to being an ally of the biggest economy in the world; the Japanese and American governments being in bed together and planning the Japanese economy is not just normal, but is one of the bigger conspiracy theories persisting from the 1980s when US intervention is blamed as the reason Japan's economy stagnated in the 90s. So I don't understand why this would be a sky is falling moment.
Because then the world's largest economy suddenly needs to de-lever to afford the oil you made more expensive. The USA government will enter a debt-interest spiral if Japan sells its bonds. There will be no recovery from that besides, maybe, hyperinflation through printing away the debt.
> The USA government will enter a debt-interest spiral if Japan sells its bonds.
Regardless if they sell all their bonds this second or not, the US spiral is a foregone conclusion.
FX interventions are nothing new and 3% isn't nothing but it's not that much. The sun will rise in the morning, nbd.
Not really what you asked for, but what I would say is that this specific incident isn't like some huge deal or something. It's just the USA doing something that helps Japan stabilize its currency, and helps the USA avoid a spike in people selling US treasuries (which would raise US borrowing costs).
It's unusual, but not earth shattering or crazy.
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The wider picture looks rather worrysome though. Japan has spent decades building up a nest egg of US treasuries as a way to try and fight of deflation. Now, they have inflation and currency depreciation, so the extremely natural thing to do is for Japan to sell their accumulated assets to defend their currency and dampen inflation.
The USA on the other hand has been going around with a fork and sticking it in electrical sockets, and has earned a reputation for being extremely erratic and unfocused on stability. The USA also has zero plan or intention to get its debt burden under control.
This makes investors who hold US treasuries nervous. They see increasing geopolitical instability, increasing political disfunction in the USA, and the early stages of a USA debt crisis that could end in debt defaults (Bessent has already actually hinted at this, when he suggested unilaterally converting some already sold bonds to '100 year bonds').
This situation has caused US borrowing costs to go up, and japan switching from a net treasury buyer to a net treasury seller would make it harder for the USA to sell more bonds without giving even higher interest rates, which just makes the current debt troubles worse.
Don’t forget the EUR side to the operation. US is helping Japan by selling Euros. The big question whether this is a sensible bet.
As a European, I'm somewhat sensitive to that side of things, but if you look at the USD-EUR exchange rates, the Euro has only strengthened against the USD since this happened.
I guess it's just not a big enough shift to change the overall USD-EUR dynamics. Plus, I think a lot of the Eurozone wouldn't actually mind if the Euro weakened a litte, even if it'd make the current energy price problems worse.
But even if the USD did liquidate enough Euros to shift the dynamics, and if this was decided to be a bad thing, the Eurozone countries hold way more US treasuries than Japan, and could just sell those if they wanted to, which could quickly bring things back into balance, and would be a major deterrent against the US.
Doesn't mention that the Japanese would have sold US govt bonds to prop up the yen. But selling euros might force the Europeans to do just that to pro up the euro if need be. Is that a reasonable reading of things?
Euro countries hold even more US bonds than Japan does, and could sell those if they need to.
But the EU probably wont do that for monetary reasons. First, the EU doesnt really mind too much if the Euro drops in value a bit since it somewhat helps domestic industry. Second, the Euro seems to have strengthed against the dollar, not weakened since this was done.
I think if there was a coordinated selling off of US treasuries by Euro countries, it'd be to force a political concession from the USA, not to defend the Euro's value.
I don’t think the ECB would intervene, a lower euro is not a panacea but helps local industry compete with Chinese industry.
Paywalled
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Surely this is american first at it's finest and will make America great again. Propping up the yen will certainly make my groceries more affordable and rent less onerous