Why Did the U.S. and Japan Jointly Intervene in the Yen Exchange Rate? Shih Jun-ji Reveals the Motive: Successfully Defused the Global Stock Market 'Arbitrage Bomb'

U.S. President Trump and Treasury Secretary Scott Bessent confirmed 'U.S.-Japan joint intervention in the yen,' sending shockwaves through global financial markets and triggering a sharp appreciation of the yen. In response, former Taiwan Vice Premier Shih Jun-ji analyzed the situation on Facebook, stating that the coordinated U.S.-Japan intervention precisely triggered the 'unwinding of yen carry trades,' successfully preventing a repeat of the devastating stock market crash that occurred on August 5, 2024, in Taiwan, Japan, and South Korea. However, he simultaneously warned that if the Bank of Japan continues to avoid raising interest rates and lacks the determination to eliminate interest rate differentials, 'the sustainability of this yen strength remains questionable.'

Why did the U.S. and Japan jointly intervene in the yen exchange rate? Shih Jun-ji: Unwinding Carry Trades Preserved Market Resilience in Taiwan, Japan, and South Korea

Regarding the most pressing question—'What is the target level for yen appreciation?'—Shih Jun-ji reasonably speculated that the midpoint lies at 1 USD = 155 JPY. Compared to the previous historic low of 163.4 JPY, this represents an appreciation of approximately 5%. This target level was achieved early this morning, demonstrating the powerful deterrent effect of the U.S.-Japan joint intervention, which successfully triggered the 'unwinding of yen carry trades (Carry Trade)' as expected. Market arbitrageurs are now selling foreign currency assets and buying back yen to repay yen-denominated loans, preventing massive losses from further yen appreciation.

'This “orderly” unwinding has caused the yen to rapidly appreciate while preserving the resilience of stock markets in Japan, South Korea, and Taiwan!' Shih emphasized, highlighting that the timely joint intervention by the U.S. and Japan successfully prevented a repeat of the catastrophic global stock market crash triggered by carry trade unwinding on August 5, 2024.

Was $528 billion enough? Kuroda's inaction fuels short-sellers' ambitions

However, how long this appreciation can last after reaching the target level is a critical question. Reviewing the intervention process, immediately after the U.S. Federal Reserve (Fed) announced a hold on interest rates last Thursday, Japan proceeded to sell dollars and buy yen through the Federal Reserve Bank of New York. The estimated amount deployed was as high as $52.8 billion (approximately 8.45 trillion JPY). Yet, the next day, Bank of Japan Governor Kazuo Ueda announced no rate hike, maintaining the interest rate at 1%, unchanged. Although Ueda had previously stated that the central bank would 'not fall behind the curve' and would closely monitor developments, this passive stance has shaken market confidence.

Shih analyzed that the Bank of Japan's attitude caused the yen exchange rate to fluctuate wildly on Friday, 'rising and falling, falling and rising' repeatedly. The underlying reason, he explained, is the market's strong skepticism about Japan's lack of determination to raise interest rates, making it impossible to effectively narrow the U.S.-Japan interest rate differential and eliminate the incentive for yen carry trades.

Citing a weekend report from the Financial Times, Shih pointed out that seeing the BOJ unwilling to raise rates, market short-sellers had even planned a massive shorting of the yen, targeting an exchange rate of 162 JPY, betting aggressively that the yen would eventually depreciate again. Although U.S.-Japan joint support has driven the yen to strengthen today, the fundamental issue remains with the Bank of Japan. If the Japanese government and central bank continue to avoid rate hikes and fail to directly address the interest rate gap, the market will remain skeptical about how long this intervention-driven yen strength can last.