The Real Story Behind the Yen Intervention | Weston Nakamura & Ash Bennington

[0:07] Welcome back to Real Vision. I'm your host Ash Bennington. Today I'm joined by Weston Nakamura, founder of Across the Spread. You can find his work on Substack. Weston, it is great to have you back with us once again on Real Vision. >> Great to be back. Nice to meet you, Bennington-san. >> Nice to meet you, Nakamura-san. Listen, this is a huge story we're here to talk about today. I think one that's people have here in the US have been following, perhaps confused by. It is a complicated
[0:37] story. It is so great to have you because I know you follow this very closely. You're coming to us from Tokyo. It's about 10:00 at night there where you are right now. It's great to have you on the ground. Great to have you with us here to unpack this important macroeconomic story. >> What sto- What story would that be? >> I believe it would be about the Japanese yen. >> Oh, oh right, right, right. Sorry. Yes, yes. Uh yeah, so I mean, it's funny because originally we're this was, you know, you guys reached out to me to talk about the
[1:07] Bank of Japan. And and how you said at the time, like, you know, you guys do understand that there's a Bank of Japan meeting in between the time we were talking about, you know, uh filming this uh and and the actual film date. So, just in case something happens, just like, you know, give me some time to kind of put my head head around it. Okay, well, I had no idea what that potential thing might be would be this US-Japan joint coordination into
[1:38] uh FX I don't know how to say it, FX meddling. Uh foreign exchange markets intervention. JPY meddling. I didn't know that that was going to be what the thing in between potential thing might be, so. >> Hey, listen, Weston, before before we dive into this, I want you to just set the context about because you're in Japan, you think about this all the time. You got a deck we're about to walk through here, but set the broader context about where the Japanese economy is. Uh this is something Americans as
[2:09] you as you of course know don't follow closely. You're American of course uh living in Japan, but walk us through the broad context of what has been happening with the Japanese economy, what the issues on the ground are, and what people in Japan think about what's been going on let's say the last 5 to 10 years cuz there's a lot here to unpack. >> Sure. So, um fir- first of all, I would say that from a market standpoint until Korea the Kospi index and you know, like the
[2:42] uh memory semiconductor names started to just go vertical uh for the better part of I say last you know, the 2 years or so and also year-to-date um to start off the year the like Japan equity markets like the Nikkei had been the outperformer. Um and strangely that was happening at a time when the Bank of Japan had you know, sort of I don't want to say start tightening. Start to increase their policy rate uh out from negative
[3:12] to zero now to a actually having a you know, a positive interest rate. Um and you also have inflation in Japan happening. These are all kind of like multi-decade sort of thing um you know, phenomenon happening. As well as the so you have the the equity markets uh like are ripping to multi-decade highs. You have uh the yen getting crushed to multi-decade lows. You have JGB yields to multi-decade highs. You have policy rates to multi-decade highs. All that kind of thing. You have like uh wages wage increases, you know, highest
[3:43] in like multi-decade. So, all of these sort of multi-decade superlatives are are happening simultaneously. Um and you know, underpinning that really is I would say inflation that that inflation phenomenon and the the turn in the sort of public sentiment that like I you know, genuinely that that the inflationary mindset has been broken in Japan. And so that in itself is unprecedented. >> Well, I'm so glad you set the stage
[4:13] here, particularly in the context of what's been happening for decades those trends. Let me ask you this just really quickly before we hit the deck. What's the What's the mood on the ground been in Japan in terms of participants in the economy? I'm talking about workers here. I'm talking about families. What's the general overall sense of where the economy has been and where it is right now? >> Uh bad. Like again because of because of inflation. So you have wages going up, but you have inflation outpacing that. So you have real wages just getting
[4:44] crushed to again multi-decade lows. And the what's pernicious about that is that yeah, indeed nominal wages have been increasing. So like Japan Inc. it gives them you know, the ability to say we increased wages as opposed to you know, having pressure on them to to do so. So you know, there there isn't any additional step that could be done about that. But the overall sentiment is very is very poor because once again this is a society that
[5:14] for like generationally has been it's just an underlying assumption prices don't go up. They go down. So the longer you wait to buy something the cheaper it'll be. They don't know how to behave in an inflationary environment. Nobody does really anywhere like in the developed world, but at least like you know, people kind of now like after immediately after COVID like they have that under the belt in the Europe and the United States and all that. And so if there's a second bout of inflation, obviously it's going to be bad, but kind of the the general
[5:45] behavior is the recent precedence for that within people's own experiences. Japan isn't like it doesn't know how to behave in an inflationary environment. Um and you know, you have also politically, you have the Takaichi administration who came in with an just an absolute like massive massive win. Um you know, where you're where you're talking about approval ratings that had stayed in the 70 80% range for months
[6:16] and months after um her uh you know, her her election. She's kind of single-handedly pulled her party out of the dumps. >> This is prime just Prime Minister Takaichi that you're referring to. >> Uh I am. Uh she and she forged a very good relationship with President Donald Trump, which is uh quite a feat in and of itself. And in addition to that, Prime Minister uh Takaichi appointed Satsuki Katayama uh Finance Minister. She's the first female Finance Minister
[6:47] in Japan's history. She has forged a good relationship with Scott Bessent, her counterpart at uh Treasury, which is going to be very relevant to this discussion. But the overall um public support around the Takaichi administration has been enormously positive until until very recently where her approval ratings have fallen down significantly sharply. Now, they're still actually above, you know, they're net net above uh you know, 50% but and and higher than most leaders uh around the world, not that says as much, but um
[7:18] but there are people are losing faith in the she got elected because because of uh cost of living crisis policies that were promised. However, those are kind of you know, they're not they're not really um coming through or coming through fast enough and so she's starting to lose uh faith in that, meaning the the is starting to lose faith in the one institution uh or one ray of hope left is what that would would be. So the the overall sentiment
[7:49] is is not good. I would also say too that people, you know, in Japan Japan is households are basically sitting on over 50% of their financial assets are sitting in cash which is over one quadrillion yen. So that's 1,000 trillion yen. That cash is getting that those yen literal like yen stuffed in mattresses and in bank accounts and buried in in holes in people's backyards and whatnot. That cash that had been saved up over 30
[8:20] years of deflation is now getting burned in terms of their purchasing power. And so they're starting to see like being holding cash is no longer a safe haven move or a prudent thing to do. Rather you are actually now concentrated long the worst performing currency in the last like four years and one that is now apparently needs assistance from the United States in order for it to stop declining. So people are like kind of
[8:50] thinking about what to do with that cash. It's irresponsible to hold cash and to be to be concentrated cash and so they're allocating that to things like equities and all that foreign equities. That is turn in turn it's basically a capital flight that is starting to be underway. Should that really take hold, you're talking about, you know, the largest savings pool capital flight out of Japan. That's going to have massive implications on, you know, global asset prices and all that too. And so that is yet to that's kind of like the like a
[9:21] crack in a dam and right now they're trying to like put like chew a piece of gum into those cracks in the dam and and hold back that potential uh flood. Uh Successfully or not, we'll see, but >> Listen, I am so glad uh that you were able to do that, to set the table, to provide the context, to talk about what the sentiment is, what the mood is, what the tone is. And by the way, this isn't something you're reading in The Wall Street Journal. This is something you're literally seeing on the streets that you can feel uh in terms of the view that
[9:53] people actually have where you are living. Invaluable view. Let's talk a little bit about what happened uh last week. Let's kick off this story. Um begin wherever you like to begin. Obviously, many people heard about this story um with the uh with the Reuters photo that we're I think we're going to talk about. But, talk us through what happened last week and bring us up to the present. >> Sure. So, um So, dollar-yen has been on, let's say,
[10:25] since 2022. Dollar-yen has been the worst major performing currency for um the last several years consecutively. >> And don't worry, we've got plenty of charts. >> Yeah. So, at the time, to start 2022, so let's just go over like the the the weak yen, the background of the the weak yen in of itself. So, if we look at some charts, So, this is basically what happened in the last in two trading days uh ending last week, okay? And I'm starting that chart, the one that you're looking at right now, July 30, July 31. That's starting from
[10:55] Mr. Kevin Warsh, Chair Kevin Warsh and his bizarre press conference um of the July FOMC meeting to New York FX close on Friday. And you'll you'll see this massive plummet uh in in dollar-yen. But, before we get to that, so that's that's kind of the main story. >> the way, this shows that dollar strengthening and weakness for those who aren't familiar with these charts. >> This this shows dollar dollar weakness. Yen strength. >> Yen strength, yeah. Inverted, yeah.
[11:25] >> You're you're you're you're so used to USD/JPY Yeah. you're What you're trying to say, Ash, is that dollar yen is quoted as >> Yeah. >> you know, USD/JPY going up means yen weakness, USD/JPY going down means that That's what you're used to doing. >> We've been doing this for We've been doing it 20 years, man. I mean, you know, it's hard to >> Because you've been saying it for 20 years, that's why you said what you said. That's such a such a tell such a symbiotic. It's kind of hilarious. So, I hope I hope more of these kind of organic slips of your viewers come.
[11:56] Okay. So, what's behind what's behind the >> It's like It's like It's like driving on the opposite side of the road, man. It's It's hard for my brain. >> Uh it is it is indeed. So, like All right. So, the the question is like about the yen itself. Now, is this Well, um it's actually a good that you said that because a lot of people will say when USD/JPY is going up or when it's going down, particularly when it's going up though, you know, that could be dollar strength, that's not not necessarily yen weakness, um and and so on and so forth, right? So, I'm just going to show you, no, this is yen
[12:26] weakness. Um that's by and large been going on over the over the broader This is a chart of basically on the same percentage axis you have dollar yen and DXY, the dollar spot index, which is mostly the euro and all that, but it's basically the US dollar uh you know, basket. And as you can see, you know, over the last several years, more or less, you know, dollar yen and the DXY index have been moving percent for percent in tandem, if not definitely directionally in tandem, but at you know, percent for percent as
[12:57] you can see, right? >> Well, yen is a component there of DXY. >> Right. A small a smaller component. It's like 6% like the euro, and then it's like high teens for the yen, then the Brit the British pound and and all that. But nonetheless, it does represent the dollar broadly. Um so, if you actually look at this though, this chart, you'll see that dollar yen diverges sharply higher in like kind of that first part of the chart, um whereas DXY kind of stays flat, right? And that's in 2020 four is it? Yeah, 2020
[13:28] uh four. Uh and when that happens, that's clearly yen weakness, right? Because the dollar spot index has is not really moving higher, but dollar against the yen is moving sharply higher. And when that happened, that's the last time you saw uh bouts of yen intervention of of yen intervention from the Ministry of Finance in Japan on on two occasions. That first one was in April end of April uh beginning of May of 2020 four when it shot through 152 cap and immediately up
[14:00] to uh 160. And by the way, that happened uh on the back of Bank of Japan Governor Ueda giving a yet another horrendous performance of like no conviction in sort of no credibility given to him in his rate hiking uh and therefore yen strengthening or yen supportive um monetary policy. Um not that he's supposed to be you know, targeting exchange rates, but nonetheless, you know, if if the Bank of Japan is not being seen as credibly
[14:30] hiking their interest rate higher in the face of inflation, then that's going to spill over into further yen weakness. And so, that's what he did. He literally was like, "You know, currency problem? Well, whatever do you mean?" And so, that's why dollar yen went from 155 handle to 160 in two trading days. So, the mini- Minister of Finance steps in, they do that first intervention. The second one the second uh red line of intervention that you see there, that is in July of 2024. That's the thing that leads to eventually August beginning of August Black Monday
[15:00] um in which the yen sharply sharply accelerates its upward trend and blows up the world um in you see it like in the minus 13% day in in the Nikkei and all that. Okay, so that when when it diverges from when dollar yen diverges sharply higher from DXY, that's clearly yen weakness, and that's when Ministry of Finance has been stepping in to intervene and support uh JPY uh to the upside or dollar yen to the downside. And they do that by smacking dollar yen down,
[15:30] um, essentially selling tens of billions of US D at the market and crushing the exchange rate down. Now, if you look at, uh, from the middle of that chart forward >> that, of course, this is the confusing part, right? And that means when you see dollar JPY, you'll see that rising. So, it's the inverse. It's measured the chart dollar dollar yen is measuring the dollar against the yen. So, it's the reverse for the yen. >> Right. But, but what the Ministry of Finance does, uh, when when the Japan
[16:00] Ministry of Finance intervenes in the yen, what they're doing is they're selling USD. Right? They're You could say they're selling USD and buying JPY, but Japan has plenty of JPY. It doesn't It doesn't need to buy much of it. It needs to sell down USD JPY, literally. It needs to sell that, um, down. And they do that by uh, selling, you know, uh, dollar assets, dollar, you know, reserve assets, and we'll get to that in a minute. But, if you look at back to this chart, from that middle point, that line
[16:30] in the middle, that's liberation day. That's when, by the way, that's when my the the the day that my daughter was born. And now I would say like, "What have you done to the world? Like, you've destroyed trillions in financial markets. What have you brought upon us?" Uh, April 2nd, 2025. April 2nd, 2025 was when Donald Trump brings out that Cinco was born and shows, uh, everyone's sort of, uh, punishment of tariffs. >> This is the tariff show. >> You'll see that the dollar, measured by
[17:00] the dollar spot index, the DXY index, has been more or less kind of flat. You're right, like range-bound on and on the floor. But, you'll see the yen dollar yen just completely diverge and shoot upwards to new, you know, multi-decade highs. >> The major flip here for people to get their heads around is that this is a change in direction for what has historically been happening for all of our lives for the last 20 years, which is one of the reasons why it's so hard to talk about because the historical problem in Japan has been deflation and that is what the yen intervention has
[17:31] been. This is a flip. >> Yeah, so, you know, um it up until 2022 yeah, the yen was kind of had been well, I actually up until uh 2013 of Abenomics kicking you off. Uh the yen had been rather strong, you know, like like 80 dollar yen like 80, you know, 90-ish. Um and then Abenomics kicks in, gets dollar yen higher into the, you know, uh 100 handle then 120 and now we're and
[18:01] that was purposely, you know, done um in order to sort of make Japan more competitive in the in different in different ways. Uh Japan Inc. and all that. Um it's to spur investment to, you know, uh galvanize animal spirits and all of that. So, that was like a desirable thing for dollar yen to go higher. Now though, it's out of the like the dollar yen going higher or the yen, you know, weakening is undesirable. It's happening at a pace that's undesirable. It's happening at a level going to levels that are undesirable and it's what most
[18:31] undesirable of all is that it's not within the control of policymakers um and financial authorities um Bank of Japan Ministry of Finance and all that. So, if you see like this this this weak dollar uh weaker yen that's the the kind of uh the title of this particular slide is that dollar has been weak the broadly speaking since liberation day, right? If you want to call it dedollarization or flight from the world, whatever it is. Doesn't matter what the reason is. The fact of the matter is DXY has been basically flat on the floor um since liberation day. But, the fact that
[19:03] the it the uh that dollar yen is going up while that's uh that dollar flatness on the floor has been going on in tandem means that the the yen is getting crushed. That's what that means, right? So, it's not a dollar weakness story or So, dollar yen going up is certainly not like a a strong dollar story at all. No, it's a yen that is even weaker than the already weak dollar. Uh if you look at this chart, this is basically yen purchasing power. This is like, you know, the the black
[19:33] line is the actual exchange rate itself, but if you look at it from like a purchasing power actual kind of maybe fundamental real world sort of measurement of like what the this piece of paper is the yen can actually buy. You can see that that's at multi-decade lows as well. So, fundamentally, it's also, you know, uh at um you know, the the yen purchasing power and value uh is and is is weakening. If you look at this, okay? People say Well, the the reason that the yen is getting crushed, the reason that dollar yen is is going higher is because of
[20:05] policy spread differentials. In other words, the Fed has a higher fed funds rate, the Bank of Japan has a very low, you know, zero to low uh uh policy rate, and that differential, the spread between that, that's driving dollar yen higher. Okay? That may or may not have been the case. So, so if you look at this chart, the top panel is is literally the fed funds rate and the Bank of Japan policy rate, you know, on the same scale. And you'll see that, you know,
[20:35] the Fed ripped rates higher in the face of COVID, and then after that, they started to reduce rates. Bank of Japan had begun to increase interest rates. So, initially, the first first half of this chart, the bottom the bottom part of that chart is the actual spread itself. The fed funds rate minus the Bank of Japan policy rate. That's the spread. So, you'll see that because the Bank of Japan did not increase interest rates when the Fed ripped rates higher from 500 basis points, um you know, in starting from 2022, that policy rate spread went from nearly zero. In In
[21:05] words, essentially this almost having the same actual policy rate, you know, Fed funds Fed funds and and BOJ to, you know, about 5% difference differential. And when that happened, dollar yen had, you know, moved up accordingly. But then, that policy rate spread began to flatten out because the Bank of Japan wasn't moving on uh rate hikes and the Fed and the Fed was done with rate hiking. And then, after that, the policy rate spread began to narrow because the Fed had been
[21:36] decreasing their uh Fed funds rate at the same time that the Bank of Japan had been increasing. So, you're getting it from both directions, right? So, the policy rate spread is now at basically like cut in half from peak. Yet, dollar yen is still marching further higher. So, the fact that, you know, or this notion of the Bank of Japan needs to hike rates and or if the Fed cuts rates, that will help support the yen is clearly not the case.
[22:06] For many years, it's those things detached. On And then further, if you want to look at nominal yield spreads, here's the 10-year uh US Treasury yield minus the 10-year JGB yield uh spread as well. Okay, so 10-year uh US Treasury yield minus um minus 10-year JGB yield. And you'll see that at first and then dollar yen overlay. And you'll see, you know, for a very long time, those two would correlate because if there is a higher yield in the US and a
[22:38] lower yield in the in in Japan, then investors will favor, you know, investing in a higher yielding 10-year US Treasury that is providing providing much more of a, you know, fixed income yield or return than JGB uh would for for a similar duration. >> And so that which will which will weaken the yen, net effect. >> Right. However, uh since again since like 2025 or so or 2020 you know mid 2025 and certainly 2026
[23:08] you'll see that that spread has also dramatically decreased because JGB yields mostly from the JGB yield side have been shooting up very sharply higher. And so now there is like less of a spread a difference in these two yields and yet once again dollar yen is not is not following along. It's on its own path higher. So this doesn't apply either. >> Okay. So So why don't why do we see that
[23:38] weakening of the yen in relation to that to the to a an interest rate differential that should provide exactly the opposite? >> Well, actually you're getting to my you're getting to the the core of what's what's happening right now with the United States and and all that So So let me let me just So right now before we before I answer your question this this slide right here I just want to show that like if you look at it from a you know a a nominal yield spread perspective
[24:08] 10-year US Treasury minus 10-year JGB yields have now that spread has now gone back to 2020 to levels. In other words back when dollar yen was like 115 118-ish. Okay. So that's how much of like yield spread compression has gone on and yet dollar yen is at 40-year highs. So clearly what my point is that like central bank policy spreads nominal yield spreads at the longer end
[24:38] you know what whatever maybe those things don't apply anymore. The yen is just on structural weakness regardless of those things. Despite those things. Okay. So um this brings us to the 48 hours of the last two uh last two trading days of of last week starting from, the you know, that one too. >> Right. >> Uh okay. Oh, wait. I'm sorry. You asked me So, why what's why is the week Yen happening despite all of this? Why
[25:09] like why have has the Yen basically diverged from this, right? >> Right. Um so there's, you know, there's plenty of kind of academic reasons uh and I would say like there's not one single reason. I would say that there are different factors that have different levels of weighting uh in contribution of this, but there's no single reason. So, at any given moment I could, you know, I could give you like what the thing is for for this week, but there isn't really a
[25:39] single sort of thing. What I will say is that recently what you're seeing is JGB yields have been climbing across the curve from two-year JGB yields to to 40 uh year JGB yields. They're all just going upwards. And normally normally what we should happen is higher yields, you know, domestic yields should mean that it would strengthen the Yen because that is attractive the higher yielding JGB is going to bring money back home from, you know, uh Japanese investors who have who are the largest foreign
[26:09] investors in fiscal fixed income in the world. If there's a yield that is attractive enough in Japan uh without having to take on currency risk, they're going to repatriate back home and that's going to push, you know, yields down. That's not been the case. You're seeing both JGB yields and dollar Yen or euro Yen or whatever it is increasing both in lockstep tandem with one another. What that is is again capital flight. That is the selling of JGBs to get the hell out of Japan fixed income. Not get not, you
[26:41] know, invite in uh repatriation, but it's just further selling by domestics out of their natural long Yen holdings. So, that's one of the key reasons that you're um seeing this uh yen weakness that's defying all these other charts. >> That's the long structural factor that you're talking about there. Right there. That That's the idea that the that as that capital flies, uh you see that the yen weakening. I guess the one correlation that's held, the one thing
[27:11] that's behaved exactly as you would expect, uh would be US intervention in the yen creates that chart right there over 2 days, which is that you see uh US dollar weakening yen strength, which is uh USD/JPY decline right there. Yeah, that's all That's all correlation still holds at least. >> That's the core In the correlate If you want to use that word term correlation, the correlation of when a non-economic government actor steps in out of nowhere and suddenly blasts tens of billions of dollars of USD at the market, then yeah, USD will go down. That correlation does exist. >> [laughter]
[27:41] >> For that time being. For that time being. Doesn't mean that it's going to uh persist there after. That's That's the issue. Um >> And that's that's skepticism that you're expressing, the idea of whether or not this can hold, whether or not uh markets ultimately in the longer term will invert that despite uh the fact that there has been massive intervention. That I mean that's Is that the the expression of the risk that you have here? >> Not not in the longer term. That's the luxury that that we don't have like in the immediate term.
[28:11] Will it will it hold? You know, that's that's what the the question is. >> I always appreciate your cynicism, Weston. >> It's sometimes it's not cynicism, it's it's the reality, right? But um But like longer term is like we don't have like you know, when when if there's um you know, like an an earthquake that's that's hitting and then like a tsunami on its way, well, yeah, you can think about longer term, but you probably need to like think about like get the hell out of the way of the tsunami if, you know, first like. So, I'm just going in order
[28:41] of like uh chronology, if not sort of priority. >> Okay, so what's the risk here, Weston? What do you see potentially happening next? How do you frame what those risks might be? >> Okay, okay, well, um Let me just So, let's get into what happened what's what's been happening. This this major announcement, this major I don't know, event. I don't know what what the right noun is. What would you say the noun is? Thing that happened with >> You're talking about the intervention. >> Yes, I'm talking about specifically the
[29:12] US involvement of partnership to coordination. Whatever you want to call that. I'll talk about that. Okay. Um Before we like So, what I want to do is I want to explain what that what actually happened and all that. But, before that it's very necessary for me to have to sort of dispel a lot of I don't want to call it nonsense and garbage, but for lack of a better term, nonsense and garbage out there. Because and it's this is not to like, you know,
[29:44] you know, like disparage like other media outlets or anything like that. The reason that I'm going to do what I'm about to do is because it is very necessary for to in order for you to understand what's actually happened and how this whole Japan US kind of public alliance to support the yen, how that all came about. The media has a massive role in in all of this, okay? So,
[30:15] Um wait, let me just show uh the I got to go out of order here. Okay, this is going to be uh I'm I'm I'm not picking on Hedgeye. I'm not Hedgeye, sorry. Zerohedge. I'm not picking on Hedgeye uh Zerohedge. Uh not that I consider them a real, you know, media like financial media outlet anyway, but the term confirmed has been thrown around so like egregiously liberally throughout the this entirety of the last
[30:46] few trading days, okay? Saying that, you know, some authority some some, you know, US or Japan authority confirms that intervention has taken place or confirms like XYZ or whatever. And because that gets then re-circulated by other media outlets when indeed nothing has actually been confirmed because I'm defining confirmed as actual official public statement made by only a handful of people. Secretary Bessant, Finance Minister Kateriyama, the you know, President Trump,
[31:17] uh you know, uh PM uh Takaiji, and or maybe like the the central banks, but they're not really relevant either. Otherwise, what you're seeing is media outlets saying making a gigantic headline and then instead saying like underneath that, "S- Unnamed sources say, according to people familiar with the matter." Okay? Sorry, that's not confirmation. Okay? But then, if you take that and run with it as a like a definite thing that happened,
[31:47] that's very dangerous because you're not acting on actual information. Even if it happens to be true, you know, you have to go by what is actually being said by officials or at least be aware of what is, you know, kind of allegations or what is like based off of a foundation of unnamed sources and what has actually been said, you know, tactically by by the uh officials, okay? So, if you look at this example, this is the most egregious one of all all that I saw. This is a headline. "Bank of Japan confirms
[32:18] intervention. Fed con- conducted rate check." Now, that title alone, if that title, just the title, the headline itself, if that were true, wow, because the big story is would not even be the intervention itself. The big story there within that headline would be the fact that the Bank of Japan, who in this context is an unimportant actor. The Bank of Japan is not the decision-making body. They are the order-executing body. The decision-making body to intervene in
[32:48] foreign exchange is the Ministry of Finance. They make the decision and they tell the Bank of Japan, basically as their broker, "Hey, execute this order." So, according to this, if the Bank of Japan is confirming yen intervention, that means they're going behind the back of the Ministry of Finance to what, like publicly state uh a very highly sensitive confidential information? For For For what reason, right? So, that title in itself is is nonsense that people don't know what to talk about. But, oh my god, the Bank of Japan, they
[33:19] confirmed yen intervention. Let's see what Let's see what they say. The first two words, Nikkei reports. Okay, so now you went from the Bank of Japan confirming something to now you're talking you're reporting on what the Nikkei is reporting. So, that already kind of cancels out what your headline is saying. The next three, four words are that that market participants learned. Okay, so now we've gone from the Bank of Japan confirming that yen intervention took place to now that anonymous market participants,
[33:51] whoever they may be, have learned something and that they've told they relayed that to Nikkei. So, that's a massive massive difference, okay? The Bank of Japan confirmed to the Nikkei has reported about market participants that something said, okay? But, the the the Unfortunately, that's not the the worst of it. The worst of it is if you look at this very last line of the very first um few words of the very last line. You read that for me, Ash, please. >> Like the I can't read it. It's It's way too small on my screen. No, I can't read it.
[34:21] >> it it it it ends with this same article ends with the following, quote, "Obviously, there is no confirmation." Really? Obviously? Well, then why in the hell is your headline Bank of Japan confirms and then you say obviously there's no confirmation within the same article. Now, not everybody is like putting out like this level of egregious nonsense, but unfortunately, the bigger like media, you know, ecosystem is actually doing this. They're
[34:51] putting out very grandiose headlines of the Fed confirmed, the New York Fed. Again, the New York Fed is not the decision-making body. They're acting and working on behalf of Secretary Besson and and the Treasury Department. They're just the order executing body, but the New York Fed has confirmed that they sold that the, you know, the United States has sold uh euro yen cross um on Friday and and so on and so forth, right? >> Let me let me let me just jump in here cuz I want I want to give I want to give you my my
[35:21] uh understanding of what you're saying. So, first of all, you're very upset about the media and imprecision and stuff. >> love that. >> I read this I read that to mean that maybe that that with that headline was saying was that was what had been reported uh by Nikkei, obviously one of the huge outlets uh in Japan, but the bigger point that I take uh from from what you're saying here is be very careful uh about what you read because it's relatively murky. There has been a lack of confirmation from uh the Ministry of Finance, which is the
[35:51] official body here and and understand um that you may not uh be getting exactly the whole story because there's obviously a language barrier here. It's very complicated uh and and things may not be what they appear to be. And if I take you correctly, you're saying that this intervention uh may not have happened at Well, it may not happen at all in terms of the actual market execution. >> Yeah, so that's exactly right, that last part you said. So, just to correct the record from from what what your your
[36:22] accusations are to me is that is that Look, I don't care. I don't care what the media reports on. Like I don't I'm not this is not for like journalistic like, you know, uh uh morals or what or whatever the hell it is, okay? Like this is fine. They could do whatever they want to, right? Freedom of press this means you could freedom of printing fine. So, what I'm the reason that I'm saying that this is significant to markets and to on understanding this is what you just said, which is that this sort of um
[36:55] this like grabbing onto a headline or, you know, whatever be the and then regurgitating that having like the the broader media ecosystem like regurgitate things, that actually then solidifies that to become a reality such that it actually has pushed Finance Minister Khatiwada and Scott Bessent to have to make the statement of yes, indeed, we have uh joint coordinated uh uh you know, um uh forex intervention. Because if they don't do that in the face of this
[37:25] onslaught of media accusing them or, you know, making this this sort of reality in people's minds and the market uh participants' minds. And if they stay quiet, then that's a problem. So, this created what we're talking we're we're about to talk about, okay? That's why it's important. And also it's all obviously important because we have to again understand what actually has happened, what has not actually happened. And I'm going to say right now what has not been actually confirmed. And if you look through I'm going to go through like kind of like step-by-step,
[37:56] but the United States has not actually been confirmed to have acted as in uh put their hands directly into foreign exchange markets themselves. Okay? Joint coordination does not mean that the US is doing the exact same market activity and market execution as the Ministry of Finance in Japan is, okay? It just all Currently all All means is that there is a coordinated effort, but that doesn't mean equivalent actions being taken. So
[38:28] far, what we know is from a confirmation standpoint, confirmation being defined not as what the Nikkei's learned, that market participants have learned about Wawa. Now, confirmation being actual Ministry of Finance officials, Finance Minister Kanda saying the only side that has actually done any actual market intervention is the Japan side, and the best inside has not. And so far as I'm concerned, the United States has her hands clean so far, okay? Um that's and that's that's a very critical difference, wouldn't you say?
[38:58] So that's the reason it matters. >> Okay. And but this idea of coordination, it means that they are certainly speaking about it and they are conferring. That's the Is that the broader point? >> That is a broader point. So what it get it gets to the the start of what is actually happening. So now we can actually talk about what is actually happening. Um and so cuz we have to dispel what was you know, potentially not happening. Now, if you look at this, this is a one piece of the the media that Look, I got to I need to point out uh
[39:29] three media outlets in specifically um in this because they're the ones who kind of really shape this. >> This is the Reuters This is the Reuters photo. >> Yeah, you probably have seen this like in this this kind of went viral, right? This over the shot This was from Friday um this over the shot like Camp David photo of uh Scott Bessent's notepad to-do list uh during a cabinet meeting in which he writes to do, buy Japanese yen, parentheses JPY, 5 to 10 billion. 5 to 10 billion dollars. Now obviously to me, I thought that this was nonsense
[40:00] to like begin with. Like, it's almost to a point where like when I saw this, I was like, "Oh my god, Bessent, like this is like embarrassing." If I were if I were advising Scott Bessent, I would say like, "Dude, do not do this." If if he says like, "I'm going to go into the meeting and I'm going to write down a pad like, you know, buy Japanese yen." I'd I'd I'd like, "Sir, with all due respect, don't do that. That's a really stupid idea. And people are going to see right through it and they're going to show see how like kind of nonsense it is and you're going to lose credibility. Well, I was wrong. Bessent was right. Bessent knows the media. They took this and they kind of the way that Reuters had
[40:31] unveiled this was like as if this was some sleuthy photographer that taken picture of like this, you know, and and leaked this out and and clearly he's like this is like a bait, right? And then he comes out and Bessent came out on CNBC um after this weekend on on Monday saying like, "No, of of course that was like a like that was me trying to bait the the media. They they took the bait." and all that. And and it's very obvious because of, you know, like Scott Bessent is a currency trader for 40 years at hedge fund. He doesn't need to write Nobody writes Japanese yen out
[41:01] like I've never written that out. And he doesn't need the reminder of what Japanese yen is by putting in parentheses what the ticker is, the JPY part, okay? And much less put it like on a to-do list. Like really? Like you're in the middle of like Iran war, you have That's all you have to do? And if it's a broader to-do list, then that means that you need to write that down in order to remember it because then that shows that how unimportant it is. Either way, the whole thing The reason that I'm pointing this out, however, is not to show Reuters ridiculousness. They've already done
[41:31] that themselves. I don't need to do that. Not that that's something that I would have any interest in either. What I'm showing is that the read on this is wrong, okay? The read on this from people who recognize that this is Scott Bessent purposely planting this so that, you know, the the general consensus understanding is that this shows that Scott Bessent in the United States is very serious about their commitment to uh supporting the yen. That's what this shows. That's what the signals. I would say quite the contrary. What this shows
[42:01] is Scott Bessent's um let's just say non-desire or his his unwillingness to actually step into markets and actually conduct foreign exchange intervention activity. Because his hope was this was in the middle of the day. This is at like 12:00 p.m. Eastern. His hope was that this like Reuters whoever would see this and then they would immediately rush to print this and then markets would see that, react to it,
[42:31] front-run it, and hopefully the dollar-yen downwards move would happen without him having to lift a single finger of his own and actually, you know, uh execute in markets. That's what the aim was for him for for this, right? It but what it again, what it shows is his desire to not actually do any of it himself. If this move is to done this this this act of this theatrical act is done so that he doesn't have to actually do anything himself. Okay? So, that's
[43:01] that point. >> You're like the You're like the Lewis Black of the Japanese yen. >> [laughter] >> Yes, exactly. That is pissing me off because blah blah blah blah blah. So, the other two elements, okay, that matter here are Nikkei and the Financial Times. The Nikkei matters because the Nikkei is the one that every single like sharp move down in dollar-yen, the Nikkei has been basically putting out immediately like articles saying "Jap- Japan carries out yen-buying intervention." Like kind
[43:31] of definitively, right? But again, if you look at what they actually say in like, you know, July 31st, the title "Japan carries out yen-buying intervention as UA uh executes rate check." Sounds very definitive. Then it says "Japanese government intervened in foreign exchange markets to buy yen and sell dollars on Thursday while US authorities executed a rate check, a move often seen as precursor to blah blah blah." Uh the yen surged from below, okay. Then uh the the final part I'm including here is "Japanese government um conducted
[44:01] large-scale yen-buying, market sources said." Okay. The second one, you know, the US carried out a joint forest intervention on Friday for the first time since 2011. Um, you know, this is again government sources said on Sunday. And then, it says Japanese Vice Minister of Finance Satsuki Katayama is expected to explain the intervention and other steps against currency weakness on Monday morning. Okay, so again, these are officials are also working on a possible joint US uh statement. So, this was done before that
[44:32] actually was announced. The the fact that they're going to be having an announcement, let alone the announcement itself. So, these are sort of the things that pushed the announcement itself. Um, then the third the last one is Financial Times. Financial Times is the one who said that uh definitively that the yen range yen range had taken place from the US side on the euro yen EUR JPY cross, not dollar yen. Um Again, Federal Reserve Bank of New York undertook the unusual move of conducting a sale of euros to buy yen on behalf of the Treasury, according to three people familiar with
[45:03] matter. The sales were conducted through Goldman Sachs, Morgan Stanley, according to two of those people. Now, look at the bottom uh right corner of this slide that I included. I just want to remind everybody, the Financial Times is owned wholly by Nikkei. Okay? So, what that means is that the the three media organizations that I just mentioned, Reuters with a stupid like, you know, over the shoulder like that that aside, the two that have been driving the headlines and therefore the not just the markets, but the actual policy makers' decisions and actions are
[45:36] Nikkei and Financial Times, but that really is one media organization. Okay? I'm not saying that they cross-colluded. I'm also not saying that they didn't. But, it's important to remember that these are the same uh you know, organizations. They're they're not competitors. They're not going to check each other. More likely, if if anything, they're going to be or acting as one. So, my point is that everything that people know and are basing their assumptions on are coming from one media source, which is the Nikkei and its subsidiary the Financial Times, citing unnamed sources and all of that. That is
[46:06] and then they're making these grandiose sort of assumptions and theses about this is Plaza Accord part two or whatever it is. Whatever your like assumptions or or whatever your kind of conclusions or your your commentary or your analysis is, if it's based on this, it's not based on any foundation of reality or anything firm. It's based on sources familiar with the matter as reported by the Nikkei. Hey, so that's the very critical difference that needs to be pointed out.
[46:37] So, fair so >> Ash Yeah, so let's let's get to I know I know you've got a some some slides here at the end of the deck for your long-term view. Uh you've got some charts and you've got uh you've got some uh some things that I think would be helpful for people to understand in terms of your view. Uh let's bring those up. >> Well, actually let me let me just quickly go through what actually was said and then the the the statement themselves. So, if you look at this, you look at this part, what's the actual joint coordination statement that came out? Okay? So,
[47:07] August 3rd at 8:00 a.m. Japan time. Uh before right before like, you know, uh Japan market open um equity market open. These came out simultaneously side by side from Ministry of Finance and and Treasury Secretary Scott Bessent. And basically what they're saying is th- this is what the actual news is, okay? But, if you look at this carefully, this is what I've underlined here, Japan Ministry of Finance purchased the yen in coordination with the US Department of Treasury. That's what
[47:37] they're definitely saying. The Japan Min- uh Ministry of Finance purchased Japanese yen. In coordination with US you know, uh the United States, that does not mean that the United States did the actual purchasing themselves, okay? If you look at what Scott Bessent says, Friday's coordinated foreign exchange actions, okay? Not the United States uh actual intervention itself. They're saying their coordinated foreign exchange actions counter disorderly yen interventions. And then he finally says we strongly support Japan's decisive market and monetary
[48:09] steps to correct the substantial undervalue you know undervaluation of the yen. So, if you put those together, nowhere in that is there any even official uh statement saying that the United States has done anything in actual markets. It definitively says it that Japan does. So, we know what it looks like in writing when you know, one of the uh when a when an official government does take actual action markets. But, the fact that that's totally missing from the US side on from both sides of
[48:40] the statements shows that the United States has yet to confirm or say anything about their actual market, you know, execution themselves. The United States so far has its hands clean from actual market intervention. That's not what the general consensus assumption is. And that needs to be understood as like that's incorrect for for one to assume. >> Yeah, and your your point is that the word coordinated is doing a lot of work here in terms of that what that what that might mean uh could be interpreted
[49:10] very broadly. It might just mean in coordination, meaning they're the two sides are in contact as this is happening. >> Exactly. Or just the release of this tweet itself could be could be coordination. Um so, what they're what they've basically announced is that they are essentially going to uh have Japan Ministry of Finance use the Fed FIMA program, FIMA. And what that is is it's a facility that was like a COVID era facility that's that's rarely used, in which holders of US
[49:40] Treasuries, governments, you know, uh can basically like pledge their as collateral their Treasury holdings in order to get US dollars, right? So, the problem is is that first of all, why did Scott Bessent do this? Why is this happening in the first place? It's happening clearly the the you know, the from American perspective obviously it's has nothing to do with like wanting to help Japan. They don't they don't care to they don't want to see Japan like suffer anything, but they don't really it's you know, it's everyone's looking
[50:12] out for their own interests as they should. So is Japan for that matter. Why so why is Secretary Bessent now getting involved in this supporting the yen? It's not supporting of the yen, it's supporting of or defending the US Treasury market, purely. That's what that's for, okay? Because Japan is the largest foreign holder of of US Treasuries, and so if they need US dollars in order to sell and sell down dollar yen, they are going to have to sell their US Treasuries in order to do so, and that is a problem for Scott Bessent. So, it's not like so why like
[50:44] why did this occur? If you look at this slide, I'll I'll show you. This occurred because of US Treasury market, especially at the long end, you know, kind of go going haywire, and for Japan to to prevent Japan from potentially selling US Treasuries in order to raise USD to hit the market down. If you look at this, this is actually January of this this year, 2026. The New York Fed for the first time, this kind of came out of nowhere, this
[51:14] is the first steps of US involvement in this. They conducted a rate check, which is when the New York Fed goes around and you know, calls up the private sector banks, you know, like the institutions and just tells like, "Hey, what's give me a price quote on dollar yen or whatever." And that's a precursor to potential actual activity market activity intervention that that occurs you know, subsequently. So, they actually did this in January after right after a Bank of Japan another, you know, useless Bank of Japan
[51:44] Ueda meeting where he was unconvincingly hawkish. And so, you saw dollar-yen actually fall sharply after that because that was a kind of the first thing that happened. But, if you look at US Treasury yields at the time, that's when US Treasury yields were were sharply, you know, were on their way higher. That's when Scott Bessent was starting to, you know, get very concerned about US Treasury yields and not dollar-yen and whatsoever. And so, that's why he actually apparently initiated this. It wasn't Japan, it wasn't Tokyo calling Washington saying, "Hey, can you get the New York Fed to do
[52:14] a rate check?" No, it actually came from his side to apparently allegedly. So, with that in mind >> me let me let me let me ask you this question cuz we we a lot of this I'm curious to know what your long-term outlook is because there's a lot a lot of complexity here as you as you pointed out, a lot of ambiguity, perhaps a lot of misunderstanding particularly in the reporting. What's your long-term outlook? You've already expressed questions about whether or not the intervention can be successful in ultimately supporting the yen.
[52:44] What's your long-term outlook here? What should people look for? >> Uh I think that well, the implications are if the if the US is basically So, right now the US has yet to actually uh enter the foreign exchange markets themselves directly, okay? Um and they're they would like to keep it that way for whatever reason. It's either because of, you know, market integrity or whatever it is um
[53:14] or probably more likely so, they don't want to entangle themselves in this this never-ending forever war against JPY short sellers, right? Which is what Japan has involved themselves in. Um I would be looking for if the US ever actually does that. Again, they have yet to do that, but um mainly what this would mean is if the if Japan has to use this FEMA facility in which they are
[53:45] taking their US Treasury holdings and they're repoing it over to the US and getting USD in exchange. What that means is that those Treasury holdings are cannot be sold because they're being held at, you know, in custody of of America. What that also means is that if if this facility becomes a regular part of or a necessary structure in order to cap dollar yen from going higher, um you know, as that, you know, facility
[54:17] continues to get used, then what that would mean is that Japan's purchasing of of US Treasuries also becomes, you know, interlinked with that. In other words, Japan is holding US Treasuries or buying US Treasuries, um if they're if they're doing so for purposes of yen intervention because they need collateral to further borrow USD to keep to keep doing this, that structurally creates demand for US
[54:48] Treasuries, especially long-dated US Treasuries, from Japanese government. And so that's essentially what Scott Bessent has has has engineered here, uh quite cleverly, if, you know, should that be the case. Um and it also means that it kind of puts Scott Bessent in a massively powerful position of over the Japanese financial authorities in which he can say, "Listen, I am essentially bailing you out or I'm I'm helping you out here." Yes, like, you know, you can
[55:19] argue that the Japanese government is has the leverage because they can blast the US Treasury market, but it really isn't the leverage that belongs to to the US side. And so Scott Bessent can essentially say, "I'm bailing you out right now, but you have to fundamentally like strengthen the yen on your own. That means Bank of Japan rate hikes need to happen successively, quickly, definitively, and all that. That means, you know, you probably might have to cut down on fiscal spending or get the
[55:49] fiscal house in order. It gives him a massive amount of power over Japan fiscal and monetary policy. So, if you thought that like Japan monetary policy was not independent because it belong, you know, is under the control of the Japanese government, well, this potentially kind of hand it over to the United States government. So, like massive implications uh should this facility continue to be used. >> All right, Weston, so what's the outlook? What happens next? >> Well, what happens next in the short term, like 150 the dollar yen 155 is is
[56:19] kind of a floor. Um longer term, right? I guess if you're asking me do I think that this is going to work, if this is going to successfully cap dollar yen for the long term, or if it's going to essentially uh not, I would lean towards the latter. I would think that I I still think that dollar yen 200 in the longer term is the more likely outcome rather than this being the start of a, you know, decades-long strengthening of the yen.
[56:49] And the reason is just very simply because, first of all, dollar yen 200 sounds like a crazy figure, but it is only 40 handles away, um and those kind of like a 40 yen had increment is how if you look at this chart, dollar yen has actually made 40 yen increments uh uh upside, you know, runs before. This would just be yet another one. So, this there's historical precedence for this. And each time, by the way, people that went dollar yen was at 80, 120, impossible. Okay, and then 120 hit. Then one, you know, 160,
[57:20] impossible. Then we're 160. So, 200 is it possible? Of course, it's possible. Um but the reason is because, again, the United States is not has not committed to actual market intervention, okay? And if they and the reason I suspect that they're avoiding that is because should this not hold, should they fail, or should they abandon it all together, this joint cooperation, this FEMA program, all of that kind of stuff, then dollar yen could, you know, blast higher and if they had
[57:51] uh bought yen essentially at these levels, then it doesn't allow for them to fail. So, what they're doing by not actually buying JPY and then having to incur an actual loss, not just a P&L loss, if you want to call it that, uh but an actual like uh credibility loss, they're avoiding their actual buying of JPY, selling of USD because there's this They It's because Scott Bessent
[58:21] uh currency trader Scott Bessent has a view probably that or at least a hedge that like this is not permanent and this is dependent upon Japan having to uh change fundamentally, you know, the the structure of what is making the yen so weak. And as long as those things are in place, um dollar yen is on an autopilot, you know, or or not dollar yen, just the yen general is on autopilot downward decline because of structural reasons. And so, left unattended, you know, dollar yen
[58:52] would have already hit 200 if not for these kind of yen intervention uh caps at 152 and 160 and all that. That would have already happened anyway. And so, all like do I have faith in this particular policy versus the other ones? This one not being so different from what has already been in place or already? Not particularly. I would think that over the long term, you're going to look, you're going to see dollar yen 200 instead of this being the top of, you know, USD/JPY or the floor for the yen going forward for the last for the next decade. >> I always appreciate your passion.
[59:25] >> Uh thank you. >> [laughter] >> I I um my my wife would disagree, but um But what I what I'll say is My final point is that currently as it stands right now, it's not as big of a deal as people think like as as to what has already occurred. However, the it does open up a pathway to leading to massive sort of implications on not just a market level, but on a geopolitical you know, who controls what uh, levers
[59:56] sort of level. So. >> Weston, always a pleasure when we get to do this, man. It's always fun. >> Yeah, thanks a lot thanks a lot for having me. Thank you for thank you for letting me give give me a you know, give me me an outlet to rant. >> [laughter] >> Right then. Weston Nakamura. And of course just want to get the name back in here. Founder of Across the Spread and you can find that on Substack. >> Thanks a lot, Ash. >> Weston, thanks for joining us. Thanks for watching. Thanks for listening. Have a great day, everybody.
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