Is Bessent quietly "bailing out the market"? The "ignored" major event: the United States, Japan and South Korea have carried out joint intervention, and the U.S. Treasury has taken a "rare" direct action.
The United States, Japan and South Korea joined forces this week to implement the largest coordinated foreign exchange intervention in nearly three decades.
This operation is not only targeted at the depreciation pressure of the yen and won, but also regarded as a key measure for the United States to stabilize the financial markets of its Japanese and South Korean allies and prevent risk spillovers.
This operation covers the two major Asian currencies of the Japanese yen and South Korean won. Both Japanese and South Korean foreign exchange authorities have supported their local currencies by selling U.S. dollars; the United States intervened in the yen exchange rate through non-U.S. dollar channels, selling euros and buying yen to ease the depreciation pressure on the yen and avoid pressure on the U.S. dollar.
At present, the Japanese and South Korean markets are under continuous pressure: South Korea's KOSDAQ index has fallen to its lowest point since October 2022, with obvious adjustment in the technology sector; the exchange rates of the yen and won against the U.S. dollar have continued to weaken, and the market is worried that further depreciation of local currencies may trigger chain fluctuations in Asian assets.
Different from the past practice of simply stabilizing the exchange rate, this coordinated operation is regarded by the market as a "market rescue" operation for the Japanese and South Korean financial markets.
Against the backdrop of continuous pressure on the Japanese and South Korean stock markets and substantial adjustments in the technology sector, the United States hopes to boost market confidence by stabilizing exchange rate expectations and prevent further transmission of risks.
Both Japan and South Korea are important participants in the U.S. semiconductor and AI supply chains. Stabilizing the asset markets of the two countries helps reduce the possibility of financial risks being transmitted to the technology industry chain and the U.S. market.
The U.S., Japan and South Korea rarely join hands to intervene in the foreign exchange market, and the yen and won surge sharply immediately
According to a report by the UK's Financial Times, on July 31, the U.S. Treasury Department commissioned Goldman Sachs and Morgan Stanley through the Federal Reserve Bank of New York to sell euros and buy yen, marking the first direct U.S. participation in yen intervention in nearly 30 years.
Previously, it was reported that Japanese authorities had intervened in the foreign exchange market with about 8.45 trillion yen (about 52.8 billion U.S. dollars) in a single day on July 30.
In addition, media reports stated that the South Korean foreign exchange authorities also rarely entered the market to sell U.S. dollars on the same day, pushing the won to appreciate by 2% in a single day, rising to a nine-month high.
Driven by the tripartite joint effort, USD/JPY quickly fell from above 162 to the 157-159 range, and the yen obviously moved away from its 40-year low.
South Korea's Vice Minister of Finance Moon Ji-sung said that South Korea is maintaining close coordination with the United States and Japan; Atsushi Mimura, Vice Minister of Finance for International Affairs of Japan's Ministry of Finance, also said that the U.S. support has "gone beyond simple moral solidarity".
The United States directly participates in yen intervention for the first time, sending policy signals
The U.S. Treasury's direct intervention in the yen exchange rate this time is the change that the market is most concerned about.
Different from the past, which mainly relied on verbal warnings, this time the United States rarely participates in yen intervention through actual transactions.
Citing people familiar with the matter, the UK's Financial Times reported that the Federal Reserve Bank of New York implemented the intervention by selling euros and buying yen through Goldman Sachs and Morgan Stanley. Before the operation, the U.S. Treasury had sent signals of possible intervention to a number of Wall Street institutions and maintained communication with the European Central Bank.
Before officially entering the market, the Federal Reserve Bank of New York had sent policy signals for two consecutive days.
On Thursday, the Federal Reserve Bank of New York conducted a "rate check" on USD/JPY, that is, asking traders about the current tradable exchange rate without making an immediate transaction; on Friday, it turned to conduct a "rate check" on EUR/JPY. The market generally believes that this operation is regarded as a precursor to formal intervention.
The Federal Reserve Bank of New York's "rate check" operation explores new foreign exchange intervention methods
Alex Cohen, foreign exchange strategist at Bank of America Securities, said in a report that "Rate check" is between verbal intervention and actual intervention, a new tool that the U.S. Treasury has begun to use since this year, which can send policy signals to the market without actually using funds.
But he also reminded that without the support of follow-up actual actions, the market may still retest the policy credibility of the authorities.
It is worth noting that the Federal Reserve Bank of New York partially chose to operate on EUR/JPY rather than USD/JPY this time. Analysts believe that this shows that the United States may want to exert influence through non-U.S. dollar currency channels, easing the depreciation pressure on the yen while avoiding additional pressure on the U.S. dollar.
On the Japanese side, large-scale intervention in the foreign exchange market has been carried out before. According to official data and market estimates, Japanese authorities used about 8.45 trillion yen (about 52.8 billion U.S. dollars) to support the yen on July 30, which is another large-scale intervention after a total investment of about 11.7 trillion yen from April to May this year.
The U.S. goal is not simply to stabilize the exchange rate, but to maintain the stability of its AI allies' assets
The significance of the U.S. intervention this time may go beyond traditional foreign exchange intervention.
Michael Hartnett, a strategist at Bank of America, said in the latest report that this coordinated operation by the U.S., Japan and South Korea is similar to the "Price Keeping Operation (PKO)" in the AI era, with the core goal of avoiding sustained pressure on the assets of AI industry chain allies such as Japan and South Korea.
Hartnett believes that the United States hopes to reduce three types of risks: First, prevent the rapid depreciation of the yen from driving a sharp rise in Japanese government bond yields; second, avoid the spread of financial pressure to Asian markets such as South Korea and Japan; third, reduce the impact of disorderly capital flows on the U.S. bond market.
Recently, pressure on the South Korean market has increased significantly. The KOSDAQ index has fallen to its lowest point since October 2022, and the stocks of large South Korean brokerage firms have also continued to adjust.
At the same time, the AI investment boom has not cooled down significantly. Data from Bank of America shows that semiconductor ETFs have attracted a total of about 53 billion U.S. dollars in capital inflows so far this year. Despite the recent pullback of the Philadelphia Semiconductor Index (SOX), investors continue to bet on the long-term growth of the AI industry chain.
Hartnett believes that the simultaneous emergence of coordinated intervention and market adjustment may mean that the previous high-leverage transactions are coming to an end. However, current policies are more about controlling market fluctuations rather than changing trends through liquidity policies.
This article does not constitute personal investment advice, does not represent the platform's views. The market is risky, investment needs to be cautious, please make independent judgments and decisions.
This article is from the WeChat Official Account "Wall Street CN", Author: Li Jia, published with authorization from 36Kr.