The US Treasury stepped into the foreign exchange market for the first time in 15 years, buying yen alongside Japanese authorities. This rare coordinated intervention took place around July 31 and August 1 to halt the yen’s sharp decline against the dollar, which had plunged to its weakest point in four decades.
Japan’s currency has been under relentless pressure due to persistent interest rate differences. With Japan’s ultra-low rates contrasting with higher US yields, investors have been borrowing cheap yen to fund carry trades, pouring money into riskier assets including equities, bonds, and cryptocurrencies like Bitcoin. This carry trade strategy thrives when the yen is weak, but a sudden strengthening forces traders to unwind positions rapidly.
Impact on Crypto Markets
The intervention could trigger a cascade of carry trade reversals. When the yen strengthens, borrowers must repurchase yen to repay loans, often selling off assets bought with those funds. Crypto markets felt this effect before in August 2024, when a sharp yen rally led to broad liquidations across risk assets. Treasury Secretary Scott Bessent reportedly prepared to purchase between $5 billion and $10 billion worth of yen to stabilize the currency, a move publicly confirmed by President Trump.
Japan had been fighting alone until now, spending around ¥8.45 trillion, or roughly $53 billion, on interventions. This joint action marks the first US-Japan collaboration to prop up the yen since the 2011 earthquake and tsunami crisis. The move signals Washington’s concern over the yen’s collapse and its potential ripple effects on global financial markets, including crypto.
This material is for informational purposes only and does not constitute financial advice.
