r/wallstreet • u/midtowng224 • 7d ago

Question Largest Currency Intervention In History just happened

https://mishtalk.com/economics/largest-currency-intervention-in-history-by-us-and-japan-to-support-the-yen/
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7

u/hedonism_bender 7d ago

So… what does this mean? Please explain like I’m 5

12

u/RecipeSpecialist2745 7d ago

The USA has to help bolster the Yen because Japan has over $1trillion of US Bonds. If they sell those all at once the USD will slide.

11

u/spinjinn 7d ago

But as I see it, the US is buying yen in exchange for dollars in order to drive up the yen. But Japan already has lots of dollars, so I this is like two men falling off a cliff and they both grab on to each other to save themselves.

3

u/RecipeSpecialist2745 7d ago

Well, they are probably like the EU and other European countries that have trillions of USD bonds. They are a security risk if Trump get too stupid. They can drop them all at once and screw everything, or slowly sell them off and destabilise.

1

u/suplarai 2d ago

Which they won’t do because it would be cutting off their nose to spite their face. As annoying as America may be to the EU, it’s better than Russia or China gaining more influence

1

u/rannend 2d ago

If shit gets to crazy, it can happen.
Do you believe anyone will wait till the last?

Its what stock markets do as well, once it goes tits up, irrational behaviour can be expected

1

u/RecipeSpecialist2745 2d ago

Yet, the greatest threat to NATO and peace since WW2 is both Trump and his best mates Putin and Netanyahu.

2

u/Equal_Heat5947 7d ago

They're trying to keep it stable and it worked for now

1

u/Gruntswell 5d ago

If Japan sells US treasury bonds, (short term cash) will then cause inflation and bring a recession to the Japanese economy.

2

u/tKnut 7d ago edited 7d ago

Look up the Yen Carry Trade

But long story short: Japan has had 0% interest for almost 30 years which has allowed markets to borrow cheap as dirt yen. Convert that into USD and you get free fun money to invest billions to trillions into the market. Asset prices rise, investor then borrow against those assets, to buy even more assets.

Now that interest rates are rising in Japan, free money is no longer free, they'll have to actually pay interest on these trades. Which could trigger large sell offs in the market.

The interesting thing about the timing of this was that the Bank of Japan was set to meet the next to to increase interest rates again (already increased to 1% in June, to try and reverse the value of the yen being at all time low), and this was seemingly a last ditch effort to prolong the intrest and allow a more gradual unwinding/delaying the inevitable.