US Intervenes in Yen to Protect Dollar, Not Support Japan

The recent yen intervention by the US government has been widely misinterpreted by financial media. According to Professor Steve Hanke of Johns Hopkins, Japan's monetary policy is not as loose as it seems, and its inflation rate is under control.

Hanke argues that monetary policy is about the rate of change in the money supply, not just interest rates. Japanese M2 is growing at 2.2% a year, which is below the golden growth rate of around 6%. This means Japan's economy needs more stimulus, not less.

The bond market is the real story behind the yen intervention, and it's not about supporting the yen or Japanese economy. The US Treasury wants to keep Japan from selling its massive holdings of US Treasuries, which could put upward pressure on interest rates and hurt the dollar.