US Yen Intervention: Protecting Domestic Interests over Ally Support

The United States intervened in the foreign exchange market by buying euros to prop up the value of the Japanese yen, but experts say this move was driven more by protecting US inflation and Government Bonds market than supporting Japan.

Japanese Finance Minister Satsuki Katayama claimed that the US purchase of yen was a sign of Washington's trust in Japan's economic policy, but a closer look at the calculation suggests otherwise. Instead, the US Treasury Secretary Scott Bessent mentioned 'Abenomics' in the statement announcing the currency intervention, which Katayama cited as evidence.

The NYT reported that 'the United States chose a method that props up only the yen's value without shaking confidence in the dollar.' The Financial Times noted that the US Treasury's Exchange Stabilization Fund held only euros and yen. Analysts said this was done to avoid pushing up US inflation, which could be triggered by selling large quantities of dollars.

The intervention also helped Japan avoid selling US Government Bonds, which would have caused a flood of bonds in the market, plunging bond prices and increasing yields. The 10-year US Government Bond yield is nearing 4.7% annually, and the 30-year yield has exceeded 5%. Goldman Sachs said this move shows the US side sees a risk that exchange-rate intervention could push up US Government Bonds yields.