US Sells Euros, Buys Yen in Direct Intervention to Defend the Yen

This is assessed as a strategic move to block the potential threat that the continued weakness of the yen could pose to US financial markets.

The anchor noted, "It's not dollars the US sold to buy yen, but euros," highlighting the unusual aspect of this intervention.

This is clear evidence that the US government is seriously aware of the yen's weakness.

The anchor directly quoted the notepad's to-do item, "To-do list: buy $5–10 billion in Japanese yen," suggesting that the US plan to intervene in the yen is being carried out concretely.

Japan is the world's largest holder of US Treasury bonds, with over $1 trillion. If Japan sells large amounts of US Treasuries to defend the yen, it could act as a serious threat, pushing Treasury prices down and yields sharply higher.

The anchor explained, "If Japan sells large amounts of US Treasuries to protect the yen, Treasury prices could fall further and yields could rise even more," expressing concern about the ripple effects of Japanese bond sales on US financial markets.

The yen carry trade, in which investors borrow low-interest yen to invest in higher-yielding overseas assets, is estimated at about $400 billion. If the yen surges, investors must quickly sell their overseas holdings, especially US stocks and bonds, to repay the borrowed yen. Such large-scale selling could trigger a crash in US stock and bond markets, a powder keg that could cause serious disruption across global financial markets.

The anchor warned, "When the yen starts to surge, investors rush to sell US stocks and bonds and convert dollars into yen to repay their debts," describing the chain reaction that an unwind of the yen carry trade could bring.

This also carries the potential to lead to a global financial crisis similar to the subprime mortgage crisis, making a preemptive US response increasingly important.

The decision to use euros rather than dollars to buy yen reflects a strategic judgment. If the US had sold dollars directly to buy yen, it could have signaled dollar weakness to the market, which could lead to higher US import prices and mounting inflationary pressure.

The anchor explained, "If the US sells the euros it holds and buys yen, demand for the yen rises, which can lift its value," describing the intent and effect of using euros. By using euros, the US sought to prevent market misperceptions about the dollar's value, stabilize the yen, and minimize negative effects on its own economy.

The fund holds various foreign exchange assets, including euros and yen in addition to dollars, which enables US intervention in international financial markets.

The anchor stated, "That is the US Treasury's Exchange Stabilization Fund, the ESF," emphasizing the fund's importance. The ESF plays a central role in achieving US monetary policy goals and maintaining international financial stability.