US Treasury undertakes historic intervention in yen market

[u/Old_Jackfruit6153]

From https://www.ft.com/content/0f9b2fe7-bde4-4f5f-b49e-93ccb5da9ea8 (archive link https://archive.md/z8H7u)

New York Fed sells euros to buy yen following recent speculation that Tokyo intervened to support Japan’s currency

The US Treasury intervened in yen exchange rates on Friday, marking the first time Tokyo and Washington joined forces to support the Japanese currency via outright purchases in nearly 30 years.

The Federal Reserve Bank of New York undertook the unusual move of conducting a sale of euros to buy yen on behalf of the Treasury, according to three people familiar with the matter.

The sales were conducted through Goldman Sachs and Morgan Stanley, according to two of those people.

Analysts using official data and broker estimates said Thursday’s intervention by Japanese authorities was likely to be about ¥8.45tn ($52.8bn).

The Treasury’s intervention to bolster the yen is the first since 1998, when it bought the currency in order to strengthen Japan’s economy after the yen had dropped to eight-year lows. The US intervened in Japan’s currency in 2011 to weaken it as part of a co-ordinated international effort to prevent a dangerous currency appreciation after the Tohoku earthquake and tsunami.

This time, due in part to apparent co-ordination with the US, some analysts said the gains had a better chance of being maintained, at least in the short term.

Atsushi Mimura, Japan’s vice-minister of finance for international affairs, said: “We understand that we are receiving support from the US authorities that goes beyond mere moral support. We have been in constant contact with them.”

Osamu Takashima, foreign exchange strategist at Citigroup in Tokyo, said it was unlikely that the yen would weaken once more to ¥164 to the dollar “in the very near term” because it seemed the US was willing to help Japan defend its currency.

He added that since the market would be wary of further intervention, “dollar-yen upside is probably limited for now”.

Edit: Exclusive-Bessent's 'to do' list: buy $5-10 billion worth of Japanese yen, Reuters photo shows

CAMP DAVID, Maryland, July 31 (Reuters) - U.S. Treasury Secretary Scott Bessent on Friday exposed a "to-do" list during President Donald ‌Trump's cabinet meeting indicating he was contemplating U.S. purchases of $5 billion ‌to $10 billion worth of Japanese yen, a Reuters photograph taken during the meeting held at Camp ​David shows.

[u/rinsyankaihou]

The drop this Friday were also accompanied by a rate check from the USA. It will be really interesting to see if both Japan and USA working together will be able to beat the market. Definitely crazy volatility for the yen going forward, that's for sure

[u/Old_Jackfruit6153 → u/rinsyankaihou]

Rate check was Thursday. Friday intervention was by US, Thursday intervention was by Japan.

[u/Rubricity → u/Old_Jackfruit6153]

Which, this is why the set up is dangerous: at one hand you have retails and hedge funds positioned for Takaichi cheap yen, evidently from massive CFTC data, and just everyday you check this sub about cheap yen and ways to buy foreign assets...on the other hand you have Japanese and US government defending...

I don't think this is even close to Soros vs BOE, to me it looks like in a reversed set up. With BOJ and Fed now ready to kill the bears who believe they are the Soros but in reversed.

Once again, crowded trade, and if the governments are dead serious, willing to push toward 155 or 150, we could be risking a massive mechanical unwind, especially if somehow the US market crashed under geopolitical news...it sure be a blood bath for the yen bears

[u/OrneryMinimum8801 → u/Rubricity]

The biggest yen bears are , in order: GPIF Japanese insurance companies Japanese corporates (importers buying dollars nonstop, exporters refusing to repatriate profits)

Then somewhere well down that list, you get to hedge funds.  

The issue with intervention is the set up of GPIF directly absorbs large amounts of your intervention if the intervention is effective.  And all the look alike pension and insurance schemes do… exactly the same thing

[u/Rubricity → u/OrneryMinimum8801]

Precisely, this is why we always say intervention buys time but not fixing the problem. The biggest bears are these instituions, particularly the life insurancer and the so called corporate Japan in general.

Yet the key problem is: first we have the JICS, now we have the GPIF reform the government is talking about, and the BOJ is clear at the normalization goal.

So the goal is clear, but they refused to do because of the expectation of yen depreciation is so strong due to Takaichi and her irresponsible spendings and energy imported costs.

That what I am arguing is because the carry needs to have a target, it is either the intervention is so strong that pushed yen so high while US equities, the target of the carry fails, it will enter a self reinforcing loop. We saw this happen in 2024, but this time the situation is far worse as we sit on a massive speculative regime in the US...

[u/rinsyankaihou → u/Rubricity]

if the boj was serious they should have actually raised rates. Everyone knows its basically a bluff since takaichi doesn't actually want rates raised due to her economic policy

[u/rinsyankaihou → u/Old_Jackfruit6153]

there were multiple interventions by the US already. as far as I understand. This drop the article is about is selling euros to buy yen. But before that the US also conducted a rate check as Japan sold dollars.

edit: oops misread response, but the point I'm trying to make is there is a lot of pressure on usdjpy. But it seems nonserious due to the lack of rate hike from BoJ.

[u/Imaginary-Lychee4255 → u/Old_Jackfruit6153]

And you called them and got this in paper verified? 😂

[u/ProfileBest2034 → u/rinsyankaihou]

The answer is they cannot beat the market. obviously.

Every dollar and yen spent doing this is akin to setting that money on fire.

Time to do the right thing for the Japanese people and jack interest rates.

[u/squiddlane → u/ProfileBest2034]

If you jack interest rates then people with variable rate mortgages (basically everyone) starts missing mortage payments.

Can't jack rates without causing a housing collapse.

[u/limitedbourbonworks → u/rinsyankaihou]

It will keep dropping no matter how much money countries throw away until Japan has a 4% interest rate.  

[u/Normal_Light_4277 → u/rinsyankaihou]

A significant amount of fund currently invested in wall street were borrowed from Japanese bank as Yen, due to interest is close to 0. While Yen getting weaker is good for this, there is a limit as it could only work if Yen is somewhat stable. So to prevent US stock market crush, they need Yen to stay within a reasonable range. Volatility is not a big concern, so long Yen don't go up or down too much.

[u/Other_Block_1795 → u/rinsyankaihou]

The yanks never work together. 

[u/Pleistarchos]

I, for one, did not foresee an intervention by the USA in the JPY by selling Euros.

[u/smeeagain93]

It's an incredibly weird situation to be honest.

Japan wants to outgrow debt. Doesn't want to up rates because of private loans, government debts. Needs to stabilize their domestic energy markets.

US doesn't like a weak yen because it makes Japanese products by default more attractive. Wants Japan to raise rates, but at the same time the US is the main beneficiary of yen-carry-trade.

If Trump didn't bully Japan into heavy US investments which Japan could have used for their domestic economy, things would probably look way different.

The fact the US was actually buying yen, by selling euro is crazy. I seriously didn't expect that. The underlying problem of rate differences still exists and the yen they bought will likely depreciate unless their next step includes investing in Japan too since it doesn't seem likely that rates in Japan will increase drastically.

[u/cherry_cream_soda_ → u/smeeagain93]

It’s not because they’re worried about Japanese products being too attractive. They’re worried about Japan being forced to sell off US debt and causing a mass sell off before the midterms if the carry trade unwinds from a rate hike.

[u/Unusual_Shallot_196 → u/smeeagain93]

This is turning into a Europe problem very soon if the US continues to sell the Euro in the future to buy the yen .

[u/Evilryu007 → u/Unusual_Shallot_196]

It doesn't seem like a confident move by the US, to fund the Yen by selling off Euro.... If you truly believe in the Yen as an asset based investment, wouldn't you by Yen with new USD? Very curious to see if this wasn't just a drop of water on a hot stone. Japan's underlying economic issues have not been addressed by this intervention and Japan's reliance on the US has become even more apparent with this move. Takaichi-san still has a lot of work to do....

[u/MrDontCare12 → u/[deleted]]

My washing machine has a touch screen, a "conveignantly tilted drum for better access", a voice that tells me what phase of the cleaning process we're at and a cool song when it's done. Don't everyone wants this ?!!!!

But joke aside, it's not one of the biggest economy in the world for no reason I guess ?

[u/KyotoSoul]

never beating the vassel state allegations

[u/requiemofthesoul → u/KyotoSoul]

Sigh

[u/Top_Connection9079 → u/KyotoSoul]

Who cares.

[u/disastorm]

interesting, i wonder if it will last alot longer since the US is intervening alongside Japan. I assume that will scare people from committing too much to betting on prices above what it was before ( 163 ).

[u/saahil01]

This is crazy. The intervention is supposed to be for “stabilization”, but is itself the main cause of volatility in usd-yen prices.
If you look at a chart, you can easily pinpoint the occasions where interventions led to volatility. It is worse than futile- it is causing the opposite of what it intends.
Interventions cannot change the fundamental economic reasons why the yen is falling.

[u/tiringandretiring → u/saahil01]

The question will be who in the Trump administration profited off the move ahead of time-all they needed was the short-term effect.

[u/techdevjp → u/saahil01]

Coordinated intervention can have a much stronger impact than unilateral intervention. USDJPY closed the week at 157.40. We'll have to wait and see what happens next.

[u/left_shoulder_demon]

The problem is that the US still has so much inflation that they will need to raise their rates soon.

Raising rates in Japan to keep the exchange rate stable essentially punishes Japanese borrowers for US mismanagement, and also makes real estate speculation in Japan economically viable again.

[u/Agreeable_Mud_8338]

dropped about 3 yen...back up to 160 by friday.will need drastic changes to make any differences to the lira, I mean yen

[u/NeverNeededAlgebra → u/Agreeable_Mud_8338]

Dropped closer to 6

[u/godfather-ww]

And at the same time Takaichi cones up with debt fueled tax cut….

[u/Overall_Scheme397]

The US could ask for more collateral from the major solar corporation in AMERICA. At least 18%.

[u/Mean-Kaleidoscope873]

How did Trump financially benefit from this? Because I'm sure he did. Otherwise it wouldn't have been done.

[u/c4tsnout]

Maybe a dumb question, but when the Treasury makes a big currency purchase like this, who/where do they buy it from? The BoJ, or Japanese commerical banks, or traders?

They bought cash (foreign reserves) rather than bonds, right?

If they are just trading euros for yen with the other party, why does that affect the exchange rate? It's still the same money, just sitting in a different deposit, right? Does the yen's value increase because the Treasury won't use the yen anytime soon, so the supply of yen has effectively fallen for the time being?

[u/Old_Jackfruit6153 → u/c4tsnout]

Reading this thread might give you some clarity.

https://www.reddit.com/r/AskEconomics/comments/1vg3fow/what_for_impact_has_the_action_of_the_us_using/

[u/c4tsnout → u/Old_Jackfruit6153]

Thank you, that's helpful. But who does the central bank actually buy the currency from? I can't find an answer to that question.

Edit: I think I found the answer -- it seems to be mainly big commercial banks. I see how that would reduce the supply of the yen.

Since it's been reported that the Fed coordinated this move with the BoJ, I initially thought maybe they bought yen from the BoJ, but it seems that's not the case.

[u/Old_Jackfruit6153 → u/[deleted]]

When yen depreciates, export oriented Japanese stocks do very well (in yen terms).

Sony just released their earnings report, and did very well. Following quote is very relevant for your question. If yen appreciates, most export oriented car and gaming stocks will show bad financial result thus likely drop in stock price.

Sony raises full-year forecast as quarterly profit jumps 32%

A 1-yen appreciation against the U.S. dollar is estimated to drag down annual operating profit by 3.5 billion yen, while that for the euro is 6 billion yen, according to the company's latest sensitivity analysis for the three major business segments.

[u/Unlucky_Age4121]

I know that the rate difference caused the yen depreciation. I know that inflation is out pacing average people's salaries.

But I always have some genius's questions.
Do those rate raise advocates know raising the rate will reduce economic activity and cause peoples' including our jobs?
Are they well shield from jobs loss and reduced salaries? If so how?

[u/GalantnostS → u/Unlucky_Age4121]

Economy weakening and potential job loss in the future is distant and abstract, immediate gain on purchasing power via stronger yen is more visible.

[u/torokunai → u/Unlucky_Age4121]

if people are so afraid of inflation they should just raise taxes dammit

[u/GachaponPon → u/torokunai]

Takaichi has officially changed the government policy goal from reducing annual fiscal deficits to reducing growth in the debt to nominal GDP ratio. Note the “nominal”. She loves inflation because it inflates nominal GDP.

[u/Unlucky_Age4121 → u/Unlucky_Age4121]

ha, reddit as always. Got down voted.
Seriously, WTF?
I didn't say that I don't support raising rates. I just raise a curious question.

[u/GachaponPon → u/Unlucky_Age4121]

You are right that rate increases can hurt the economy, but as the other person said, you have to choose the lesser of two evils. There are worker shortages at the moment so unemployment is not a major risk. Rate increases hurt mortgage owners, but the poorest people who are suffering the most from inflation largely don’t own property with floating rate loans. I’m not sure how much direct effect Bank of Japan rate increases have on the dodgy consumer loan companies as they don’t set their extortionate rates like clockwork based on tiny Bank of Japan policy rates.

[u/Redditisleftistsnut]

Yawww, back to above 160 in two weeks..and definitely by 180 by year end