US Treasury Secretary's Yen Intervention Sparks Concerns of Currency Wars

US Treasury Secretary Scott Bessent has intervened in foreign exchange markets to prop up the yen, citing concerns that it is undervalued. However, this move may not achieve its desired effect and could lead to a round of currency wars.

Bessent's public rationale for the intervention was that the US does not want to see a repeat of the 1930s, when countries engaged in protectionism and currency manipulation, leading to World War II. He invoked the phrase 'whatever it takes' used by European Central Bank President Mario Draghi in 2012 to save the euro.

However, some economists argue that interventions are not effective in the long run and can even lead to further instability. They point out that economic fundamentals will ultimately reassert themselves, rendering any short-term gains from intervention meaningless.

The US Treasury has already sold euros rather than dollars in its intervention, indicating that it wants to avoid a decline in US treasuries. This suggests that the real motive behind Bessent's actions is to help the US, not just Japan.