US and Japan Unite to Save Yen from Freefall

The US Treasury has taken a rare step by buying yen in collaboration with Japanese authorities to prop up Japan's currency, which had reached its weakest level against the dollar in four decades. This joint intervention is unprecedented since the aftermath of the 2011 earthquake and tsunami.

The yen had been in freefall due to persistent interest-rate gaps between the US and Japan, making it a favorite funding currency for carry trades. In these trades, investors borrow cheap yen and invest in higher-yielding assets, including equities, corporate bonds, and risk-on plays like Bitcoin and other digital assets.

The coordinated intervention is expected to stabilize the yen, but this may also trigger unwinding of carry trades, which could lead to a liquidity drain for crypto markets. The key variable is the speed at which the yen recovers, as a gradual increase gives traders time to adjust their positions without fire sales.