Yen Intervention Narrative Exposed: Separating Fact from Fiction
The recent yen intervention has sparked a flurry of speculation about its implications for global markets. However, most of what's being said is wrong.
According to reports, Japan and the US conducted a joint currency operation, with Tokyo spending ¥8.45 trillion ($53-$59 billion) in one session and $75 billion over the week. The US share was smaller, around $5-$10 billion.
The key detail is that the Treasury bought yen with euros, not dollars, so it didn't touch the Treasury market to do so. This has led some to claim that the Fed intervened, but this is a misinterpretation.
One narrative claims that Japan's currency intervention signals its impending bankruptcy. However, this is based on a misunderstanding of what 'default' means. Japan borrows in yen, which it prints itself, and owes most of its debt to domestic citizens.
Others claim that the Treasury Secretary is secretly bailing out the bond market by opening swap lines to prevent a fire sale. However, the FIMA facility used is not new; it's been around for over 60 years as part of the dollar-swap network started in 1962 to defend the Bretton Woods system.
The real concern is that this precedent blurs the line between the Treasury's job and the Fed's. The FIMA facility provides liquidity to prevent a fire sale, but it's not uncollateralized lending; Japan posts its Treasuries as collateral to receive dollars.
Lastly, some claim that fiat money is dying, so one should buy gold. However, this narrative relies on charts showing the S&P priced in gold or the dollar priced in gold, which are misleading.