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The U.S. is stepping in to help boost Japan\u2019s yen for the first time in nearly three decades after the currency hit a 40-year low, but the intervention has an unusual feature: instead of selling dollars to buy yen, the New York Fed reportedly sold euros to fund the purchase.\u00a0<\/p>\n
The coordinated move on Friday lifted the yen to 157 to the dollar and marked the first time the U.S. and Japan jointly bought the currency since 1998 during the Asian financial crisis. In 2011, the U.S., alongside the G7,\u00a0 weakened the yen after the Fukushima disaster caused the yen to be too strong, threatening Japan\u2019s export-reliant economy.\u00a0<\/p>\n
Japan is estimated to have spent $52.8 billion. The exact amount from the U.S. is unknown, though a photo of Treasury Secretary Scott Bessent\u2019s notepad suggests a range between $5 billion to $10 billion.<\/p>\n
But experts say the decision to use euros instead of dollars could backfire if fundamental issues with the yen aren\u2019t fixed. In fact, the yen has been sliding against the dollar since 2012.\u00a0\u00a0<\/p>\n
Mark Sobel, who served in the Treasury for four decades and is the U.S. chair of the Official Monetary and Financial Institutions Forum, attributed the yen\u2019s weakness to Japan\u2019s \u201coverly accommodative\u201d monetary policy, debt concerns and more recently Prime Minister Sanae Takaichi\u2019s fiscal policy.<\/p>\n
\u201cThe US is unwise to enter the market in support of the yen\u2014even if it makes a small profit in doing so\u2014unless it is part of a Japanese plan to tackle the fundamental issues driving yen weakness,\u201d Sobel told Fortune over email. \u201cAfter all, the Treasury\u2019s Exchange Stabilization Fund isn\u2019t a hedge fund.\u201d<\/p>\n
The dollar has already weakened a bit from Monday\u2019s high after President Donald Trump and Japan\u2019s finance minister confirmed the intervention.\u00a0\u00a0<\/p>\n
The choice to go with euros instead of dollars could confuse markets and lead to more questions than answers about how effective the intervention would be, according to Robin Brooks, a senior fellow at the Peterson Institute for International Economics.<\/p>\n
\u201cThis kind of twist in my opinion undercuts the efficacy of US participation,\u201d Brooks wrote in a Substack post. \u201cFX intervention is a confidence game. The last thing you want is to give markets any kind of reason to ask questions.\u201d\u00a0<\/p>\n
He predicted the yen will resume its decline, citing Japanese bond yields that are being kept artificially low.\u00a0<\/p>\n
That\u2019s because the Bank of Japan must keep yields in check to prevent the country\u2019s massive debt burden from spiraling into a crisis, Brooks explained.<\/p>\n
Edwin Truman, a former assistant secretary for international affairs at the Treasury, described using euros as \u201cweird\u201d if the objective was to strengthen the yen against the dollar, telling Fortune it would make more sense to sell dollars and buy yen.<\/p>\n
\u201cSelling a third currency would not be as effective as selling just straight dollars,\u201d he said.<\/p>\n
The main purpose of an intervention is to buy time, useful for creating \u201can inflection point\u201d but not enough to \u201coverturn fundamentals\u201d like narrower U.S.-Japan rate differentials and a softer US economic backdrop, according to ING economics analysts Chris Turner and Michiel Tukker.\u00a0<\/p>\n
\u201cWithout that, even coordinated intervention risks being remembered as another attempt to slow the dollar\u2019s rise rather than reverse it,\u201d they wrote.\u00a0<\/p>\n
The yen purchase comes less than a year after Bessent used the ESF to help stabilize the Argentine peso ahead of the country\u2019s midterm elections. Argentina ended up taking $2.5 billion and repaid the amount in full. <\/p>\n
But the Argentina and yen interventions could mark a new era of U.S. foreign currency activism in global financial markets.<\/p>\n
\u201cTaken together, the Argentine and Japanese episodes suggest a Treasury that is becoming more willing to use the ESF in support of broader economic and geopolitical objectives,\u201d Turner and Tukker wrote. \u201cThat marks a notable departure from the relative passivity that has characterised US foreign exchange policy for much of the last two decades.\u201d<\/p>\n
#U.S #Treasury #sells #euros #dollars #lift #yen #Economists #warn #backfire<\/p>\n","protected":false},"excerpt":{"rendered":"
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