The U.S. hadn't bought yen since the 1998 Asian financial crisis. This time it came with a handwritten note, a euro-for-yen trade, and a dollar devaluation that officially never happened.
Very informative article about the subtle manipulations between Japan and our Treasury under Scott Bessent. I'm familiar with his background and believe he knows what he's doing and has a steady hand going forward. And I appreciate your color on the actual reasons and need for such a strategy, particularly in terms of the carry trade. A lot of moving parts here that I am familiar with but not at this depth. Lau, do you think Bessent and his counterpart are in explicit communication and reliable agreement about how to protect the yen and devalue the dollar without spooking the bond market with negative impact on equities? PS -- thanks for the heads up again on gold and uranium as defensive moves for us retail investors.
Yes, this article explains quite well the "JPY strategy" that Japan and Bessent are playing.
Keeping that speed under control sounds like trying to keep a nuclear reaction from going critically out of control. They'll need much more than just few billion for that.
Also, even if they keep the speed of Yen as a slow grind higher, most astute and observant investors will see that trend anyway. Even without any spikes.
Repeated Yen buying by Bessent will also confirm that trend.
Thanks, Jay. On the first part, yes. An operation like this doesn't happen without explicit coordination. Treasury and the Ministry of Finance talk constantly, and a joint intervention gets negotiated down to the timing.
On 'reliable agreement', though, no, I don't think so. They agree on direction, which is the easy bit. But where they def don't agree is how far. Japan needs a much stronger yen to make its import bill manageable. Washington needs the dollar lower but can't survive a fast yen rally, because that's exactly what unwinds the carry trade (which will land on the bond market).
So, again, I can see the deal holding as long as the move stays slow. The trouble is that neither of them controls the speed. The market does.
been walking around all day pondering "a currency isn’t defended with money, it’s defended with credibility". Taken to its logical conclusion, bitcoin & gold are easy to defend and the USD eventually must fail with all the disastrous consequences that entails. And yield on the 10-year keeps marching higher, signaling a lack of confidence.
Fix the money, fix the world....says the crypto enthusiast.
Thanks, Thomas. And yes, that's exactly where it leads. Also, to be clear, I mean credibility in the eyes of the market, not that fiat has ever earned any.
Interesting and informative article. Linking it today. Have started linking some of your work @https://nothingnewunderthesun2016.com/ due to a recommendation from another Substacker I link.
Very interesting. Long-term, I'd expect that Japan can only fix its problems if it gets its trade balance in order. Japan has to export more. I think that's realistic because Japanese products are among the best in the world, they sell at premium prices and the robot revolution enables less expensive manufacturing even if Japanese workforce is aging and shrinking. Dark factories with almost no humans working in them are already a reality in China. I believe the Japanese have the engineering capabilities to do the same. Good luck, Nippon!
Thanks, Raffael. I agree. Despite the competition from China, Japan's products are still among the best in the world. But the worry in the essay isn't industrial, it's financial. Japan has the heaviest debt load in the developed world, and once the BoJ raises rates, the carry trade starts running in reverse. You can't out-manufacture a debt spiral.
More importantly, while the weak yen makes Japanese exports cheaper, Japan buys nearly all its energy and most of its food in dollars, so the currency advantage eats itself.
...and since it's Bessent, we can assume somebody positioned a Euro/Yen position IN ADVANCE of the IMPLEMENTATION of the INTERVENTION? Also, the "small" $10bn, is not small if the $10bn serves as UNDISCLOSED margin collateral for a bilateral derivative contract that amounts to much much much more?
Re " buying your own currency is never enough. Somebody else has to want it too.".....Steve Forbes (on youtube) had an interesting observation: Japan buying it's own currency DOES LITERALLY MATHEMATICALLY NOTHING to it's YEN standing b/c the money spent buying yen is "carry traded" [ie. lent] out into existence, at will, given Japan's long standing international ~0% lending status.
Finally, IMHO, the whole Japan schadenfreude "basket case" economy thing is OVERDONE in the ENglish financial press. They love to posture on empty poses and feints like that to cover truth, and I think the real truth is it's the US that's in trouble. Japan will work itself out just fine, the US is propping up a MUCH BIGGER TOWER OF JENGA at risk on it's economy than Yen affecting Japan.
Very informative article about the subtle manipulations between Japan and our Treasury under Scott Bessent. I'm familiar with his background and believe he knows what he's doing and has a steady hand going forward. And I appreciate your color on the actual reasons and need for such a strategy, particularly in terms of the carry trade. A lot of moving parts here that I am familiar with but not at this depth. Lau, do you think Bessent and his counterpart are in explicit communication and reliable agreement about how to protect the yen and devalue the dollar without spooking the bond market with negative impact on equities? PS -- thanks for the heads up again on gold and uranium as defensive moves for us retail investors.
Yes, this article explains quite well the "JPY strategy" that Japan and Bessent are playing.
Keeping that speed under control sounds like trying to keep a nuclear reaction from going critically out of control. They'll need much more than just few billion for that.
Also, even if they keep the speed of Yen as a slow grind higher, most astute and observant investors will see that trend anyway. Even without any spikes.
Repeated Yen buying by Bessent will also confirm that trend.
Thanks, Jay. On the first part, yes. An operation like this doesn't happen without explicit coordination. Treasury and the Ministry of Finance talk constantly, and a joint intervention gets negotiated down to the timing.
On 'reliable agreement', though, no, I don't think so. They agree on direction, which is the easy bit. But where they def don't agree is how far. Japan needs a much stronger yen to make its import bill manageable. Washington needs the dollar lower but can't survive a fast yen rally, because that's exactly what unwinds the carry trade (which will land on the bond market).
So, again, I can see the deal holding as long as the move stays slow. The trouble is that neither of them controls the speed. The market does.
been walking around all day pondering "a currency isn’t defended with money, it’s defended with credibility". Taken to its logical conclusion, bitcoin & gold are easy to defend and the USD eventually must fail with all the disastrous consequences that entails. And yield on the 10-year keeps marching higher, signaling a lack of confidence.
Fix the money, fix the world....says the crypto enthusiast.
Thanks, Thomas. And yes, that's exactly where it leads. Also, to be clear, I mean credibility in the eyes of the market, not that fiat has ever earned any.
Interesting and informative article. Linking it today. Have started linking some of your work @https://nothingnewunderthesun2016.com/ due to a recommendation from another Substacker I link.
Very interesting. Long-term, I'd expect that Japan can only fix its problems if it gets its trade balance in order. Japan has to export more. I think that's realistic because Japanese products are among the best in the world, they sell at premium prices and the robot revolution enables less expensive manufacturing even if Japanese workforce is aging and shrinking. Dark factories with almost no humans working in them are already a reality in China. I believe the Japanese have the engineering capabilities to do the same. Good luck, Nippon!
Thanks, Raffael. I agree. Despite the competition from China, Japan's products are still among the best in the world. But the worry in the essay isn't industrial, it's financial. Japan has the heaviest debt load in the developed world, and once the BoJ raises rates, the carry trade starts running in reverse. You can't out-manufacture a debt spiral.
More importantly, while the weak yen makes Japanese exports cheaper, Japan buys nearly all its energy and most of its food in dollars, so the currency advantage eats itself.
So, yes, good luck to them!
Right.
...and since it's Bessent, we can assume somebody positioned a Euro/Yen position IN ADVANCE of the IMPLEMENTATION of the INTERVENTION? Also, the "small" $10bn, is not small if the $10bn serves as UNDISCLOSED margin collateral for a bilateral derivative contract that amounts to much much much more?
Re " buying your own currency is never enough. Somebody else has to want it too.".....Steve Forbes (on youtube) had an interesting observation: Japan buying it's own currency DOES LITERALLY MATHEMATICALLY NOTHING to it's YEN standing b/c the money spent buying yen is "carry traded" [ie. lent] out into existence, at will, given Japan's long standing international ~0% lending status.
Finally, IMHO, the whole Japan schadenfreude "basket case" economy thing is OVERDONE in the ENglish financial press. They love to posture on empty poses and feints like that to cover truth, and I think the real truth is it's the US that's in trouble. Japan will work itself out just fine, the US is propping up a MUCH BIGGER TOWER OF JENGA at risk on it's economy than Yen affecting Japan.
https://cryptohayes.substack.com/p/yen-quake
Timberrrrrrr! Egomaniacs!!!