US Bails Out Japan's Yen to Protect Own Interests

The global financial system has been hit by a series of events that have left markets in a state of flux. The ASX experienced a slight downturn on Friday, largely due to declining copper and aluminium prices, with BHP shedding nearly 4%.

However, US markets surged to new all-time highs after 'nothing to see here' inflation data was released, calming interest-rate hawks. Japan's Nikkei index enjoyed a strong run as investors anticipated further US support for the yen.

The Yen has been plummeting towards 40-year lows, threatening Japan's massive pile of US Treasuries. In response, the US coordinated with Japan to prop up the currency, with Trump stating that Japan 'wanted a little bit of help' and the US was happy to provide it.

This move had two main motivations for the US: firstly, a collapsing yen would make Japanese exports cheaper and US goods more expensive, widening America's trade deficit. Secondly, if Japan were forced to sell its Treasuries to defend the yen, it could send bond prices lower, yields higher, and interest rates through the roof.

The resulting support for the yen has given gold a fresh boost. Normally, gold and oil don't correlate closely, but both have been rising as investors question the strength of the US dollar and global financial stability. Renewed Chinese buying has added to gold's upward momentum, while the US decision to help prop up the yen has highlighted how fragile the world's currency and debt architecture is.

Meanwhile, in Australia, the Labor government has been criticized for its handling of inflation. Prime Minister Albanese announced a $2.5 billion taxpayer-funded rescue package for Rio Tinto's Tomago aluminium smelter, which is struggling under surging electricity prices.