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Why are the U.S. and Japan trying to prop up the yen and what does it mean for Canada? - EURONEWS
What happened?
The Bank of Japan and the U.S. Treasury worked together to intervene in the yen on July 31, a move that Treasury Secretary Scott Bessent said was needed to counter "disorderly yen movements."
The joint intervention came after the yen dropped to 164 yen per U.S. dollar, a level not seen since the 1980s. The yen was down by more than 11 per cent against the U.S. dollar over the past 12 months at the time of the intervention, but has since recovered some of that ground.
"We will not hesitate to participate in further joint intervention," Bessent said in a tweet on Aug. 2. "We strongly support Japan's decisive market and monetary steps to correct the substantial undervaluation of the yen."
It is unclear how much yen the U.S. Treasury bought, but an image of a notepad belonging to Bessent suggested he planned to buy US$5-billion to US$10-billion worth of the currency.
In a twist that blindsided the European Central Bank, Treasury officials sold euros rather than dollars in exchange for yen.
"The way to make US$1 purchase less yen is to keep buying yen until that price goes up, but all sales are sales, and you could sell something else and then buy yen," said Vikram Rai, a senior economist for TD Economics. "That was what the U.S. was able to do. They didn't communicate that they were pursuing a weak dollar, but we do think that was likely part of it."
Economists said the U.S. government's intervention was unique and unusual.
"There is a fairly long history of coordinated interventions and they were quite effective because they signalled to the markets that there was a global unified attempt by central banks to move currencies in a particular direction," said Michael Devereux, an economics professor at the University of British Columbia who specializes in international finance. "This was a bilateral action and it was taken by the U.S. without communicating to any of the other central banks."
Why did the U.S. government step in?
It isn't clear why the U.S. decided to intervene at this point in time. Many observers theorize the U.S. stepped in to ensure the Japanese government wouldn't dump U.S. Treasury bonds if it moved unilaterally to stabilize its currency.
