US Treasury Secretary Scott Bessent orchestrated the first joint US-Japan currency market intervention in nearly three decades last Friday to bolster the yen.
This historic move by Washington to support another nation's currency caught investors off guard, not only because the yen had been weakening gradually rather than experiencing the sharp volatility typical of joint interventions, but also because the US opted to sell euros and buy yen instead of deploying US dollars directly.
Analysts suggest Bessent's action signals a new era of "currency interventionism" for the United States, demonstrating a willingness to intervene in trades that harm its own interests. Japan was concerned about the yen's depreciation and a sharp sell-off in its bond market, while the US grew increasingly worried that a weaker yen could amplify selling pressure on US Treasuries, given Japan is the largest foreign holder of American debt.
US officials have also previously highlighted the impact of an excessively strong dollar on exporters. Investors indicate that Washington's move has injected uncertainty into major currency markets, heralding a new period of active government intervention.
The intervention has already pushed the yen from near 164 to the dollar earlier this month—its weakest level since 1986—to around 158. However, traders and analysts warn that the intervention's effects could quickly reverse.
A Harvard professor and former chief economist of the International Monetary Fund noted that unless the US Treasury is willing to hold a substantial yen position, which would be a truly aggressive shift, this action merely buys time for the Bank of Japan.
Analysts argue that the intervention alone cannot resolve the structural factors driving the yen lower, including rising oil prices, uncertainty over massive fiscal spending programs, and the relatively slow pace of interest rate hikes by the Bank of Japan.
For the US, the risk is that if the joint intervention fails, speculators may once again target the yen or even US Treasuries. The chief global economist of an asset management firm warned that if the intervention proves ineffective, the spillover effects on long-term US Treasury bonds would be significant.
Japan stated on Monday that it plans to utilize the Federal Reserve's repurchase agreement facility, which analysts say would allow it to borrow dollars without selling Treasury bonds. US Treasuries have long been used by central banks as liquid assets to support their currencies, but with US long-term borrowing costs at their highest since 2007, Washington is highly sensitive to any signs of declining demand for its debt.
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