A clarification: The $10 billion intervention by the United States on Aug. 3 to raise the yen’s value, though advertised by Treasury Secretary Scott Bessent, actually came from the Federal Reserve—its Foreign and International Monetary Authorities Repo Facility (FIMA). This meant the Bank of Japan used Treasury holdings as repo collateral to get the euros from the Fed’s balance sheet, with which to buy yen. Bessent praised the FIMA in a CNBC television appearance Aug. 4, and suggested the Fed could get further involved in supporting the yen.
The BoJ’s own intervention was apparently much larger. Despite that, the issuance of Japan 10-year bonds on Monday went poorly, and the yield rose to 1.67%. It hasn’t been that high since the 2008 global financial crash.
There is no question that the unusual U.S.-Japan joint intervention is meant to preserve U.S. Treasury interest rates, which cannot be allowed to rise any further; in particular, to prevent the Bank of Japan from starting to sell off its huge U.S. Treasury holdings, which are second only to those of the Fed itself.
According to a Treasury official quoted by Axios, the unexpected joint intervention resulted from rapid and “disorderly” sell-off of the yen down to a historic low of 164 to the dollar; that is, there was currency market instability which threatened to spread. The CEO of a financial consulting firm was also quoted: “Markets are treating this as a currency issue, but it’s far bigger than that. When two of the world’s largest economies step into the market together for the first time in over a decade, they’re telling investors something about stress building beneath the surface of the global financial system, not just about an exchange rate.”
