πΆ Scotty saves the Yen-Carry Trade (for the U.S.A., of course).
Scotty "too hottie" Bessent ποΈ sat down at Camp David with photographers in the room and a notepad on the table. The notepad said: "Buy Japanese Yen (JPY) $5-10 bil."
In other words, the current Treasury Secretary prefers to leak his intentions via legible stationery.
I know what you're thinking, this is currency manipulation.
Now let's keep it real. Currency intervention (manipulation to some) is a confidence trick in the technical sense, and confidence tricks work better when the mark can read the sign. And this isn't the U.S.A.'s first rodeo π€ .
The last time the great powers convened to bully a foreign exchange rate into good behavior it took a hotel in New York and, two years later, a museum in Paris, and even then, the arrangement held only until it didn't (i.e. see the currency accords of 1985 & 1987).
What's changed this time is the motive. Washington did not buy yen out of affection for Tokyo (even though we all β€οΈ love sushi!)
π¦
Washington bought yen because Tokyo was sitting on a trillion dollars of our IOUs and had begun eyeing the exit βπͺsign (imagine Japanese Snagglepuss: "exit, stage left").
For those who forgot:
π± What a carry trade actually is
β³ πͺ Borrow in a currency that costs nothing. Convert it. Buy something that makes you more money.
β³ πΆοΈ Nobody can measure it exactly right, which is what makes it dangerous. Rough estimates put it near $500 billion at its peak
β³ π₯οΈ One of my favorite portfolio managers online, Michael A. Gayed, CFA, has been talking about the implosion of the Yen-Carry trade for a few years (for those who know: Few.)
𧨠The positioning was extreme
ββ³ π Global hedge funds held 125k contracts betting against the yen, roughly $9.5 billion
β³ πΊ That was near the June peak, the highest since 2007.
β³ π―π΅ The yen had touched 163.73 to the dollar, its weakest in roughly 40 years.
π€ The intervention
ββ³ π Japan's finance ministry confirmed a coordinated yen-buying intervention with the U.S. Treasury, citing excessive volatility and disorderly movements.
β³ π°οΈ First joint U.S.βJapan operation to buy yen since 1998.
β³ πͺπΊ The New York Fed, acting for Treasury, reportedly sold euros to buy yen.
β
ποΈ The real motive: our own bond market
β³ π Japan won't hike rates because its debt load makes higher rates a domestic debt-servicing crisis.
β³ π§Ύ Which leaves selling something else, and Japan holds roughly $1.14β1.19 trillion in Treasuries, the largest foreign holder by a wide margin.
β³ π The 30-year Treasury yield had already spiked to 5.24%. Defending the yen the old way risked breaking our bond market instead of theirs
Keeping in real
So no, Mr. Scotty didn't save the yen-carry trade. He only temporarily saved the next Treasury auction.
And that's the tell of a good con. When a government has to buy a foreign currency to keep foreigners from selling its own debt, the problem was never the exchange rate.
Bessent might have bought time. However, no one has yet figured out how to buy solvency.