Yen Intervention Rises as Geopolitical Threat to Global Financial System

The global financial system is facing a hidden geopolitical threat, according to notes on the crises. The US-Japan yen intervention has been marked by oddities that could have significant consequences.

The Bank of Japan's decision to keep interest rates lower than other major central banks has put pressure on the Japanese yen to depreciate against other currencies. However, this depreciation has not yet become a crisis. Significant and persistent exchange rate depreciation may cause difficulties for import prices and travel costs, but it is not a financial crisis.

The concern is that this depreciation could shift from orderly to disorderly based on broader financial market conditions. A previous analysis by the Bank for International Settlements' Hyun Shin and coauthors suggested that Asian and European investors may have been selling US dollar assets to reduce their exposure.