AI Summary
5 min readThe US-Japan Yen Intervention That Wasn't Quite What It Seemed
When a photo surfaced of Treasury Secretary Scott Bessent's to-do list, one item stood out: "Buy Japanese yen." Not "monitor yen weakness" or "discuss FX policy with Japan." Just a direct instruction to intervene in currency markets. And when the US actually did join Japan in propping up the yen, it did so in an unusual way—selling euros rather than dollars, and dusting off a Fed repo facility most people had forgotten existed.
Why the Yen Got So Weak in the First Place
The yen's weakness has been a puzzle because Japan's fundamentals don't look terrible. The country runs a current account surplus of about 5% of GDP, has one of the world's largest foreign asset portfolios, and the government holds close to $1.2 trillion in reserves plus another $900 billion in foreign assets through its pension fund. Yet the yen has been trading at levels not seen since the 1960s in inflation-adjusted terms.
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What you'll learn
- 1 (02:28) **The Setup: Treasury Secretary's To-Do List and a New Type of Yen Intervention** - Joe and Tracy introduce the episode by discussing a viral photo of Treasury Secretary Scott Bessent's to-do list, which simply read "Buy JPY," and preview the unusual mechanics of the recent US-Japan yen intervention.
- 2 (05:56) **Why Not Just Raise Rates? The BOJ's Hesitation** - Brad Setser explains the Bank of Japan's reluctance to raise interest rates as an alternative to currency intervention.
- 3 (07:45) **The Asia Currency Paradox: Good News Produces Weakness** - Setser provides a broad view of why East Asian currencies are weak despite massive trade surpluses and booming tech sectors.
- 4 (15:06) **Is This Speculation or Real Investment?** - The hosts ask how much of the yen's weakness is due to speculative carry trades versus genuine outward investment flows.
- 5 (17:21) **Why Would the US Treasury Care About a Weak Yen?** - Setser outlines the US strategic rationale for intervening in the yen.
- 6 (20:14) **Why Did the US Intervene in Euros?** - The hosts probe the unusual choice of the US selling Euros rather than dollars to support the yen.
- 7 (21:39) **Do Any Currency Valuation Models Work Anymore?** - The discussion turns to the failure of traditional models to explain or predict current exchange rates.
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Guests on this episode
Show Notes
Last week, the US joined forces with Japan to try to stop the yen’s slide. It’s the first time the two sides have intervened in the Japanese currency in 15 years, and in many ways it was an unprecedented and unusual move, with Treasury Secretary Scott Bessent choosing to sell euros (as opposed to dollars) and the use of a little-known Federal Reserve repo facility. So why did the yen’s value drop so precipitously in the first place? And will this intervention be enough to stop it? Brad Setser, senior fellow at the Council on Foreign Relations, explains why the Bank of Japan initially refrained from raising rates, why East Asian currencies (not just the yen) have been so weak lately, the improving fiscal outlook for Japan, and what to look out for next.
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