The real message in the yen intervention
The US dollar’s status as a reserve currency is not what it used to be
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THERE was an important message behind the joint intervention on the yen confirmed by the US Treasury and the Japanese Finance Ministry on Monday (Aug 3) – but it was not the one the markets received.
The Japanese authorities’ estimated 14 trillion yen (US$88 billion) intervention over two days is still small potatoes by the scale of the markets. It may produce a boost to the yen, but it will be transitory.
The Bank of Japan (BOJ), under the direction of the country’s Ministry of Finance, can buy yen and securities to push up the currency. But if investors have no reason to think that fundamental conditions have changed, they can just sell a corresponding quantity of yen securities to push the currency back down.
