The “Yentervention” Kicks US Markets Into High Gear

The stock market is getting an unexpected boost to kick off August, bucking the historically weak summer session for the U.S. stock market.

What’s happening? The Bank of Japan and the U.S. Treasury are making a coordinated effort to support Japanese yen; a move last attempted nearly 30 years in the height of the Asian Financial contagion (1998):

In a joint effort to support Japan’s failing currency, the Bank of Japan and the U.S. Treasury are selling U.S. Dollars and buying Japanese yen. (Source: Barchart)

This “yentervention”  is anything but a free market floating currency like Fed Chair Kevin Warsh has historically advocated.

 The yen has been the epicenter of leveraged global finance for decades. The scale and participants of the “yen carry trade” have shifted through several distinct eras: 

• 1999 – 2007 (The Origins): Domestic Japanese investors, facing zero returns at home, began borrowing or using their yen savings to buy higher-yielding foreign assets. This era peaked before the 2008 Global Financial Crisis, which triggered a massive, volatile unwinding of these positions. 
• 2013 – 2021 (Abenomics Acceleration): Under Prime Minister Shinzo Abe, Japan launched aggressive quantitative easing. Global hedge funds and institutional investors heavily joined the trade, borrowing cheap yen to fund investments in high-growth foreign markets, including U.S. technology stocks.
• 2022 – 2024 (The Pandemic Era Peak): The trade grew to gargantuan proportions—estimated to exceed $1 trillion—as the U.S. Federal Reserve rapidly hiked interest rates to fight inflation while Japan stubbornly maintained negative interest rates. 

 

The joint U.S.–Japan currency intervention will not permanently end the yen carry trade on its own, but it drastically disrupts it by injecting high volatility and fear into speculative positions. 

The direct action by U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Satsuki Katayama forced the yen back down from its 40-year low.

However, one side effect of the “yentervention” is the massive boost in the stock market seen over the past few days. 

How long will it last? As with any market intervention at scale, how to trade the event is a matter of speculation.

Given the correction in stocks outside the AI trade, long-term investors should make hay while the sun shines – especially with companies that continue to report stellar earnings and beaten-down stock prices.

Today’s Grey Swan Pro looks at part of the AI trade that’s growing like gangbusters, and stands to benefit from the boost markets are getting from the “yentervention” right now — details here.