US and Japan Stage Currency Market Intervention

A recent intervention in currency markets by Japan and the US highlights the potential risks of relying on fiat currencies. Two Japanese savers, one who left their money in yen and another who bought gold, demonstrate the benefits of diversification.

The gold buyer saw a 375% increase over the past decade, while the yen's value fell significantly. The same applies to gold held in US dollars, which rose by 205%. The remaining 170 percentage points came from the yen's decline.

Last week, the world witnessed Japan's and the US' coordinated efforts to prop up the yen after it reached a 40-year low of 163.86 against the dollar. This intervention is estimated to have cost between $53 billion and $90 billion on July 31 alone.

The US stepped in to support Japan, which holds the largest foreign reserves of US Treasury debt. The administration's move aimed to prevent a potential dump of billions of dollars' worth of US debt into the market, considering the high interest rates and liquidity issues.

When the New York Fed intervened, it sold euros to buy yen instead of using US dollars. This unusual tactic allowed Japan to borrow dollars against its Treasury holdings rather than sell them directly. The plan aims to prevent a potential liquidation of US debt by Japan without causing market instability.