US-Japan Intervention Falls Short of Global Show of Force
Last week's joint US-Japan intervention to support the yen lacked full G7 firepower, weakening the effort and further dimming hopes of a 'grand bargain' on exchange rates.
The operation was a transactional bilateral deal, rather than a coordinated global show of force. The US sold euros for yen as part of the operation without any European involvement, while the International Monetary Fund remained silent on the issue.
The action highlights the retreat from multilateralism in Washington and perhaps Tokyo. A Trump administration that openly rejects multilateralism prefers doing things its way: one-to-one bargaining rather than grand global agreements.
The yen has retained much of its initial bounce amid trepidation over potential repeat interventions. However, currency markets are left with as many questions as answers. Will the salvo be reinforced by more forceful Bank of Japan interest-rate rises?