US Intervened in Yen Market for Different Reasons than Thought

A recent consensus view among financial commentators is that the US intervened to support the yen due to concerns about rising interest rates. However, this perspective is at odds with both the available data and economic logic.

According to the source, Japan's holdings of US Treasury debt amount to only 2.7% of all outstanding bonds, down from a peak of 7.7% two decades ago. This figure is too small to have a significant impact on US interest rates, even if Japanese investors were to draw down their holdings.

In fact, Japanese investors have already reduced their holdings by 16% since 2021, with no noticeable effect on US interest rates. Furthermore, the data shows that higher rates in Japan do not lead to higher rates in the US, as the interest rate on ten-year T-bonds has traded within a narrow range during this period.

The article also explores an alternative explanation for US Treasury Secretary Scott Bessent's actions. According to the source, Bessent may be trying to fulfill President Trump's priorities of making Asian currencies stronger and keeping US rates low by urging Japan to raise interest rates.