US intervenes to shield Wall Street from yen trade unwind
The US Treasury has quietly intervened to stabilize the sliding yen to prevent a disorderly unwind of the cheap-yen carry trade that fuels hundreds of billions of dollars in American tech and AI investments.
The yen has slipped back towards 160 against the dollar despite last month's US-Japanese intervention. Earlier this month, US Treasury Secretary Scott Bessent stepped in by selling at least $10 billion in euros to buy yen, arresting its slide toward a 40-year low. Donald Trump indicated more assistance is forthcoming, stating, “Japan’s been very good to us, with the exception, of course, of Pearl Harbor.”
This intervention is fundamentally about protecting American markets rather than rescuing a foreign ally. Japan’s ultra-low interest rates have made the yen a primary funding source for global finance, with bankers borrowing the currency to buy higher-yielding US tech equities. This carry trade is a critical mechanism allowing Wall Street to channel hundreds of billions of dollars into artificial intelligence, an industry that now consumes more than 1% of US GDP.
Traders are testing Washington's resolve, a dynamic exacerbated by rising oil prices stemming from US-Iran tensions. If the yen weakens to 164, Tokyo might feel compelled to raise rates aggressively. Such a move would threaten Japan's domestic investment cycle and trigger a violent market reversal. A stronger yen increases the cost of repaying yen-denominated debt, forcing investors to sell US assets to cover their positions, which drives the yen up further and inflicts deeper losses.
Bessent is equally keen to avoid the alternative: Japan dumping its $1.1 trillion hoard of US Treasuries to defend its currency, which would spike American borrowing costs. Instead, the Treasury Secretary has permitted Tokyo to borrow dollars against those Treasuries via a Federal Reserve lending facility to purchase yen. Bessent is now pushing to increase the facility's current $60 billion daily limit, allowing Japan to stabilize its currency without liquidating US debt or killing its reflationary program.
The approach reflects Bessent’s deep background as a macro trader. He famously made George Soros $1 billion in 1992 by shorting the British pound and another billion in 2013 betting against the yen. While Margaret Thatcher argued that “you can’t buck the market”, Bessent is signaling to speculators that he is prepared to rewrite the rules to prevent a broader US asset rout.
