Dollar's 'Outer Perimeter Defense' Cracks Under Pressure
US Treasury Secretary Scott Bessent has been seen holding a to-do list with just one item: purchasing $5-10 billion worth of yen. He claimed this was necessary to prevent currency wars, but experts believe his true motive is to protect the dollar.
Bessent invoked the phrase 'whatever it takes' from European Central Bank President Mario Draghi's 2012 speech to save the euro. However, unlike Draghi, Bessent has not addressed the underlying economic fundamentals that led to the yen's undervaluation.
Historically, currency interventions have proven ineffective in the long run, with market pressures eventually reasserting themselves. Japan would need to implement higher interest rates and fiscal contraction, while the US would need to lower interest rates and reduce debt. However, neither side is willing to make these changes.
The yen has already started to fall again since its initial post-intervention surge, indicating that more interventions will be needed. Markets are likely to treat these actions with increasing skepticism, and Bessent's gamble may ultimately prove futile.