Bessent's Yen Ruse Falls Short Amid Carry Trade Concerns

The US Treasury's intervention in the yen market has been deemed ineffective by some experts. Scott Bessent, part of the team that made $1 billion by forcing the pound off the European Exchange-Rate Mechanism in 1992, has found himself caught in a standoff with currency traders over his recent efforts to stabilise the yen. The intervention was aimed at strengthening the yen, which had weakened due to the yield gap between Japan (where rates are 1%) and the US (where rates are over 3.5%). However, the yen's post-intervention gain has given back roughly half.

Currency analysts warn that the fundamental drivers of a weak yen have not gone away. Some experts believe that if the yen's slide continues, Japan may be forced to respond with 'aggressive' interest-rate rises, which could quickly unwind the carry trade and trigger a Wall Street rout.

However, Masayuki Nakajima of Mizuho Bank downplays this risk, saying it seems low. He believes that traders have made appropriate preparations for higher Japanese rates and that all the ingredients are in place for the carry trade to continue and yen selling pressure to persist.