US and Japan Intervene to Prop Up Yen Amid Economic Struggles

The recent intervention by the US and Japan in the currency markets has raised concerns about the stability of fiat currencies. The yen had fallen to a 40-year low, hitting 163.86 to the dollar on July 23. In response, Japan moved first, sending the yen up 2.4% in a single session, followed by the US stepping in and adding another 1.2%. Estimates put the cost of this intervention alone at between $53 billion and $90 billion.

The intervention was likely motivated by Japan's status as the largest foreign holder of US Treasury debt on the planet. When a country defends its currency, it usually sells its reserves, including US government bonds. A serious defense of the yen could have included dumping billions of US debt into the market, which would have had significant implications for global markets.

The yen's decline has also been linked to Japan's economic struggles, including high inflation and a reliance on imported energy. The Bank of Japan expects inflation to remain above its 2% target, while Tokyo cut its growth forecast from 1.3% to 0.9%. This has led some analysts to question the effectiveness of the intervention in addressing the underlying issues.

One interesting aspect of this story is how gold has performed during this time. While the price of gold in dollars fell by 5%, it actually rose by around 1% in yen. This suggests that investors who held gold were shielded from the decline in the yen, highlighting its potential as a hedge against currency fluctuations.