Yen Intervention Exposed: Separating Fact from Fiction in Global Finance

The recent yen intervention has sparked a wave of speculation and alarm in financial circles, but most of what's being said is wrong. The actual facts are quite different from the narrative that's emerged.

Let's start with what actually happened: Japan and the US jointly intervened to push up the value of the yen, which had fallen to its weakest point in 40 years. Tokyo spent around ¥8.45 trillion ($53-$59 billion) in one session, while the US contributed a much smaller amount - $5-$10 billion.

What's often overlooked is that the US Treasury bought yen with euros, not dollars, so it didn't need to touch the Treasury market to do this. The New York Fed served as the Treasury's operating desk, which is its ordinary role when the US engages in currency markets.

The narrative surrounding the intervention has been filled with dire predictions and warnings about the end of fiat money and the rise of gold. However, most of these claims are based on misunderstandings or misinterpretations of what actually happened.

One common claim is that Japan is 'demolishing its currency' by devaluing it, which is equivalent to an implicit default. However, this overlooks the fact that Japan owes its debt mostly to itself and can print more money to pay off its obligations.

Another narrative is that the US Treasury Secretary, Scott Bessent, is quietly bailing out the bond market by using swap lines to prevent a fire sale of Treasuries. However, this is also based on a misunderstanding: what's actually happening is that the FIMA facility is providing liquidity to prevent a fire sale that would hurt all parties more.

Finally, some people are claiming that fiat money is dying and gold is the only 'real' currency. While it's true that gold has been doing well in certain charts, this ignores the fact that such charts tell us only one thing: how well an asset is doing when measured against gold.