The Insane US-Japan Currency Bailout
What this video is
⚡ a 33-minute video, readable in 60 secondsIn July 2026 the US Treasury intervened to prop up the Japanese yen for the first time since 1998, a move quietly launched from a handwritten 'Buy Japanese Yen' note on Treasury Secretary Scott Bessent's notepad. Bessent, a former Soros hedge fund manager who once helped 'break the Bank of England,' ran the operation through an unusual channel, selling euros rather than dollars via the New York Fed, which drew criticism from European central bankers who weren't told in advance. The intervention comes amid a widening US-Japan interest rate gap fueling a multi-trillion dollar yen carry trade, rising US borrowing costs, and warnings from economists that Washington's own trade and debt policies are working against the currency goals it claims to want.
[00:00] The US is paying more to borrow than in decades, tied to a currency intervention it hasn't attempted since 1998
Key takeaways
- [00:32] Treasury Secretary Bessent's notepad read simply 'Buy Japanese Yen (JPY)'
- [00:43] The noted trade size was 5 to 10 billion dollars
- [01:27] Trump said the US intervened because it's 'always there for Japan,' adding 'with the exception of course of Pearl Harbor'
- [02:55] The last US intervention to support the yen was 1998 during the Asian financial crisis, making this the first such action in 28 years
+ 24 more takeaways
- [03:06] Bessent, a former Soros hedge fund manager now running the Treasury, placed a large personal bet that US interest rates would fall
- [03:11] In his late twenties Bessent worked under Soros and Druckenmiller when they shorted the British pound and 'broke the Bank of England'
- [05:18] The yen hit its weakest level since 1986, sliding toward a 40-year low against the dollar
- [05:33] The Fed raised rates to about 3.75% in 2022-2023 while the BOJ held at zero before recently raising to 1%, creating the rate gap behind the carry trade
- [07:37] By some estimates the global carry trade has grown to over 4 trillion dollars, larger than India's entire economy
- [09:14] Priced in katsu curry, a dollar should buy about 62 yen versus the actual market rate of about 159 yen
- [09:40] The Big Mac Index calculates a dollar should buy about 80 yen, also finding the yen too cheap
- [11:24] The Treasury's July Monitoring List names 10 countries: China, Japan, Korea, Taiwan, Thailand, Singapore, Vietnam, Germany, Ireland and Switzerland
- [13:04] On July 31 the New York Fed executed the trade via Goldman Sachs and Morgan Stanley, selling euros rather than dollars to buy yen, without informing the ECB
- [13:52] There's a real possibility the US propped up the yen by dumping French government bonds without telling Paris or Frankfurt
- [14:04] European central bankers only learned of the euro sale after it happened and called it an unprecedented breach of central banking etiquette
- [14:51] Late last year Bessent similarly intervened to back Javier Milei's government by buying Argentine pesos as part of a $20bn lifeline
- [16:51] Japan is the largest foreign holder of US government debt, with over a trillion dollars in treasuries
- [18:20] Bessent has been running an 'activist debt issuance' strategy, holding long-bond auctions steady while expanding short-term bill supply, betting long rates will fall
- [21:40] 10-year yields have climbed to around 4.6% and 30-year rates crossed 5% for the first time since the global financial crisis
- [22:51] Bessent publicly encouraged the Fed to upsize its FIMA Repo Facility, which lets foreign central banks post treasuries as collateral for dollars without selling them openly
- [25:03] Over two days at the end of July, Japanese and American authorities spent roughly 88 billion dollars and the yen strengthened about 5 percent
- [25:33] Within two weeks the yen surrendered about half those gains, weakening back past 159, with investors citing a lack of a 'unified voice' among central banks
- [26:03] Economist Maurice Obstfeld calls the approach 'cakeism,' chasing contradictory goals at once without paying for it
- [26:49] Obstfeld argues US trade policy itself, including Section 301 tariffs on Japan and a $550bn investment deal, is partly causing the yen weakness the intervention aims to fix
- [28:14] On Thursday the Treasury auctioned $25 billion of 30-year bonds at a yield of 5.22%, the highest since 2001, with US debt near $40tn
- [29:20] Research found the Treasury Convenience Yield, the discount the US got for having the world's safest debt, has vanished and even gone negative
- [30:13] The suggested fix is for Japan to raise its own rates, but the BOJ's governor faces a prime minister averse to higher borrowing costs despite inflation above 2%
- The night before that, a $42 billion sale of 10-year notes went at the highest yield since 2007.
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