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.

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

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.

Copper and resources are sending us a cleaner market signal than AI stocks.

Channeling Ludwig von Mises, we observe this morning that price is not just a number; it’s information. Price reflects what buyers and sellers collectively believe: demand, scarcity, fear, speculation, disappointment, future expectations and available supply.

When prices rise, and inventories fall at the same time, the message is usually straightforward: buyers need the stuff, and there is not enough of it.

A low VIX does not predict disaster. It measures complacency. A serial skeptic will read it as the calm before a storm. We shook off that feeling this morning and opted to pursue an opportunity instead.

Here goes:

A VIX reading below 15 means the market is not pricing in much near-term trouble, even though there are obvious risks still sitting in the room: Iran, oil prices, memory chip speculation, circular financing, high valuations, epic high concentrations, spiking long-term interest rates, a regime change at the Fed, a meltdown in Japan and a historic deficit and rising national debt.

Money is not flowing in a clean, straight line from outside investors to productive businesses. The firms at the top are investing in and buying from each other.

Microsoft and OpenAI are the easiest examples to follow.

Microsoft says OpenAI has contracted to purchase an additional $250 billion in Azure services, while Microsoft continues to account for $13 billion in funding commitments to OpenAI as an investment.

At this stage, it’s a stock picker’s market.