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Japan and the U.S. Conduct First Joint Currency Operation Since 2011 to Stabilize the Yen

Japan and the United States recently conducted their first joint currency operation since 2011, with Tokyo spending approximately $53 to $59 billion in a single session to push the yen back up from its 40-year low. While many observers have framed the move as a sign of an imminent sovereign default, the operation was actually a strategic use of the Treasury's plumbing to maintain financial stability. The U.S. share of the operation was smaller, involving roughly $5 to $10 billion, and notably, the Treasury bought yen with euros rather than dollars. This intervention highlights the role of the Federal Reserve as a backstop for the global system. By using an expanded FIMA facility, the Treasury Secretary, Scott Bessent, is providing liquidity to prevent a potential fire sale of Japanese Treasuries. This move is a long-term strategy to ensure the dollar remains the global reserve currency. While the yen's weakness is a real policy failure, it does not signify an immediate collapse. Investors should view the yen's stabilization as a temporary relief from volatility, allowing for a continued 'risk-on' environment for stocks and credit.

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