Yen Carry Trade at Risk: US-Japan Intervention Shifts Currency Landscape

The recent US-Japan intervention has made short-yen trades riskier and could push investors towards alternative funding currencies, such as the euro.

The coordinated operation involved both governments buying yen to support the currency and stabilize its value.

Jesper Koll, expert director at Monex Group, described Japan's finance ministry and the US Treasury as having 'successfully weaponized the yen' by making investors consider the risk of two sovereign balance sheets appearing on the other side of a large speculative position.

Currency intervention has become a tool of statecraft, with some analysts seeing Washington's willingness to use currency policy in support of strategic partners as evidence that foreign exchange intervention has acquired a 'geopolitical tinge'.