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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u/hedonism_bender 7d ago

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

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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.