Newsletter · · Ashutosh Agarwal

Washington Bought the Yen and It Worked for Now - G10 FX & The Carry Trade - Week of August 6, 2026

A synthesis of what FX podcasts said about the week the United States and Japan jointly bought yen for the first time since 1998, the euro broke above $1.15, and the Bank of England held rates, for the week of August 6, 2026.

G10 FX & The Carry Trade

Week of August 6, 2026: Washington Bought the Yen and It Worked for Now

This is the kind of week that rewards readers who have been following the yen story for months, because on Friday it stopped being a Japan story and became an American one.

Here is the thing that almost never happens. A government does not usually reach into the currency market to prop up someone else's money. Yet that is exactly what the United States did last Friday. The US Treasury, led by Scott Bessent, sold euros and bought Japanese yen, side by side with Tokyo, to drag the yen up off its weakest level in four decades. The last time Washington and Tokyo teamed up like this to strengthen the yen was 1998, under Bill Clinton. In market terms, that is a lifetime ago.

The result was violent and immediate. The yen had been sliding for weeks; the dollar had been buying roughly 164 yen. Within two sessions it was buying about 155, a huge move for a major currency, before settling back near 158. The dollar fell against almost everything. The euro finally broke through a ceiling it had been banging against for a month. Sterling drifted up. And the whole "the dollar just keeps winning" story that ran all summer suddenly looked fragile.

Below is what the podcasts said, who did what, why they did it, and whether any of it will actually last. The one date that now matters more than the intervention itself: the US jobs report, out Friday.

TL;DR

  • The US and Japan jointly bought yen on Friday, the first coordinated move to lift the yen since 1998. Japan went first alone on Thursday; then Treasury Secretary Scott Bessent joined in, and, tellingly, he did it by selling euros rather than dollars. The dollar fell from about ¥164 to a low near ¥155 before easing to ¥158.

  • Almost every serious voice says it won't hold on its own. Apollo's Torsten Slok called it "intervention without the adjustment", a bridge, not a cure. Standard Chartered's Stephen Englander: the US "has not spent a lot… and doesn't want to spend a lot." The only real fix is the Bank of Japan raising interest rates, and it didn't.

  • The euro broke out. EUR/USD cleared the $1.15 line that Saxo's John Hardy had drawn as the make-or-break level, and closed the week at $1.1541 with a high of $1.1560. Above $1.15, Hardy's own map opens the door toward $1.18.

  • The Bank of England held at 3.75% and all but slammed the door on hikes. Governor Andrew Bailey said there was "little evidence of second-round effects" and that the Bank is "not getting closer to a hike." Sterling is a passenger this week, riding the weaker dollar to about $1.35.

  • Britain has a new government, and the bond market is nervous about it. New Prime Minister Andy Burnham and Chancellor John Healey are, in Nomura's read, "policy-first", deciding what to spend, then fitting it into the rules. Nomura's title for the week said it all: "Mr Un-credible?"

  • The Swiss franc had no story of its own again, but it keeps showing up as the market's new favourite currency to borrow, the role the yen is becoming too dangerous to play.

  • The most tradeable idea of the week: borrow Swiss francs to buy yen. Hardy calls the franc-versus-yen gap an "incredible valuation situation," and it sidesteps the risk of being short a currency the world's governments are now actively defending.

What's new

1. The main event: Washington and Tokyo bought the yen together, and how they did it is the whole story

Let's be precise about the sequence, because two different things happened.

Thursday (Japan, alone). Japan's Ministry of Finance stepped into the market and bought yen. The move was startling in its speed. Peter Boockvar, chief investment officer at One Point BFG, described it on RiskReversal's Cracks Everywhere (Aug 3):

Thursday, 9.30 in the morning, just another morning going through a lot of earnings. And within 10 seconds, the yen goes from 164 to 159.

On Saxo's Market Call (Jul 31), John Hardy of Saxo Bank clocked the same move, the dollar diving to just below ¥158, touching a key long-term average, then "backfilling" back above ¥160.50. It was, he noted, the biggest one-day move in dollar-yen since December 2023.

Friday (the United States joins in). This is the historic part. The US Treasury bought yen alongside Japan. And the method carried a message. On Saxo's Coordinated JPY intervention (Aug 3), Hardy explained why Washington sold euros to fund the trade rather than selling dollars:

We have the U.S. side confirming that it had sold euros versus the yen. So why euros versus the yen? … We don't want to make a statement on the dollar. We're not trying to say that the dollar is overvalued… We want just to make the point that our ally Japan is, we're supporting their effort to stabilize their currency.

The scale, for once, we can almost see. A photographer caught a handwritten note on Bessent's cabinet-meeting notepad. As Mariko Oi, the BBC's self-described "Japanese yen geek," recounted on Business Daily's Why does Trump care about the Japanese yen? (Aug 5), the note read: "to do, buy Japanese yen, five to ten billion dollars." Bessent later told CNBC he left the list visible on purpose, he wanted the reporters looking over his shoulder to learn the symbol JPY.

Here is the clever bit of plumbing, in plain English. Japan did not have to sell its giant pile of US government bonds to raise the dollars it needed. Instead, as Hardy and others explained, it can pledge those bonds as collateral through a special facility and borrow dollars against them (roughly US$60 billion a day), then swap back later. That matters enormously to Washington, because Japan is the largest foreign owner of US Treasury bonds, holding about US$1.2 trillion of them. If Japan were forced to dump those bonds, it would push US borrowing costs up, the last thing the Treasury wants.

Why the US suddenly cares was laid out cleanly by Stephen Englander, global head of FX at Standard Chartered, on Bloomberg Surveillance (Aug 4):

The problem for the US is twofold. The major problem is that increasingly when we see the Japanese yen acutely weak, it's associated with higher Japanese yields… and some of those higher Japanese yields spill over into US yields. Now, the Treasury Secretary, his only job description is keeping borrowing costs down.

Englander stressed how rare this is: it is the first time the US has done this "in this form," telegraphing its intentions in advance, and doing it "Friday afternoon when most people are heading to the beach." His verdict on whether it can work in the long run was blunt: interventions fail if nothing underneath changes, and ordinary Japanese savers moving money abroad "are not going to care that the US has intervened."

2. Why (almost) everyone says the rescue is a bridge, not a cure

The most useful frame came from Torsten Slok, Apollo's chief economist, on Brew Markets' SpaceX Craters & Propping up the Yen (Aug 5). Slok's point is that intervention only works when it comes with homework, and Japan hasn't done the homework:

The academic literature that looks at interventions says that interventions are mostly successful when you do two things. You signal that we're going to intervene… and at the same time, you also come with some adjustment package… This was just the intervention without the adjustment. And that is a risk that in a few weeks people may say, well, that was good for the time that it was, but now we're going back to looking at fundamentals.

Those fundamentals are ugly. Japan's government debt is more than 200% of the size of its economy, roughly double the US level. The yen has been weak for about a year and a half mainly for that reason, Slok said, plus the fact that Japanese interest rates are still far below everyone else's, which makes the yen unattractive to hold.

That gap in interest rates is the engine of the "carry trade", the single most important idea for understanding the yen. In a carry trade, investors borrow a currency where it costs almost nothing (the yen) and put the money into assets that pay more (US stocks, US bonds, higher-yielding currencies), pocketing the difference. Bloomberg's Ruth Carson, on Big Take Asia's Why a Weak Yen Is America's Problem (Aug 4), put the scale in perspective: by some estimates this trade is worth more than US$4 trillion, bigger than the entire economy of India, and every bit of it involves selling yen. That is why the yen keeps sinking no matter how many times Tokyo intervenes.

Carson also gave the cleanest test of success, and it's worth keeping:

Successful intervention is where the yen does not only strengthen but keeps its strength… where you get investors in Japan, the mega funds, coming out to say we are buying Japanese assets en masse once more. But I don't see firm evidence of that just yet.

And she noted the sheer money already spent: Japan laid out roughly US$74 billion in April and more than US$80 billion over two days at the end of last week.

The desks that watch this professionally think the ammunition is running low. On JPMorgan's At Any Rate (Jul 31), the bank's Japan currency strategist estimated Thursday's move alone at about ¥6-7 trillion. Add the April and May rounds and Japan has now spent roughly ¥18-19 trillion, already more than the ¥15 trillion it burned through in 2024. His conclusion: the remaining "dry powder" is only about ¥5-6 trillion, which makes repeated big interventions "unlikely going forward." (Worth noting: that same strategist judged full US-Japan coordination "highly unlikely", the bar, he said, is normally only cleared in a genuine crisis like 1998 or 2011. Then it happened two days later. A humbling week for base cases.)

3. The euro finally broke out, exactly where the map said it would

For weeks we've been watching one number: $1.15 on the euro. Saxo's John Hardy had drawn it as the line that decides whether the bearish euro story survives. This week the euro cleared it. EUR/USD ran from $1.1386 to close the week at $1.1541, printing a high of $1.1560 along the way.

Hardy himself spelled out what comes next once that line breaks, on Saxo (Jul 31):

Some key levels besides the dollar-yen levels I mentioned would be something like 115 in euro-dollar, maintaining that in the coming days. That opens up potentially the range towards 118 in euro-dollar.

In plain terms: hold above $1.15 and the next stop he flags is $1.18.

There's a genuine twist here worth savouring. The US funded its yen-buying by selling euros, which should push the euro down. And yet the euro rose anyway, because the dollar was falling even faster. One pundit on the Morning Market Briefing (Aug 3) argued Bessent was deliberately "throwing stones in the wettest paper bag", that shorting the euro was the smart half of the trade because he expects Europe to cut rates. That view sits awkwardly with the actual data: eurozone inflation is drifting up (headline 2.9% in July from 2.8%, core around 2.5%), German unemployment ticked higher, and markets are close to fully pricing an ECB rate rise in September, not a cut. So take the "short euro" logic as a trader's instinct, not a forecast the numbers support.

4. The Bank of England held, and made sterling boring on purpose

The Bank of England left its interest rate at 3.75% for a fifth straight meeting, on a 6-3 vote where all three dissenters wanted a hike. On paper that looks hawkish. In practice it was the opposite, because Governor Andrew Bailey went out of his way to squash the idea. As Hardy relayed on Saxo (Jul 31), Bailey said there was "little evidence of second-round effects" from higher oil prices, and, the line clients seized on, that the Bank is "not getting closer to a hike."

Nomura's rates team drove the point home on The Week Ahead (Jul 31). Andy Chater, head of UK rates strategy, made the counterintuitive observation that even though the vote moved one notch toward a hike (from 7-2 to 6-3), it "actually felt like… we've moved further away from a hike." Claire Lombardelli, widely seen as the next official who might switch to voting for hikes, said her decision to hold wasn't even close.

Sterling barely reacted on its own merits, it sold off, then firmed, and mostly just rode the weaker dollar up to about $1.35.

5. The real UK story isn't the Bank, it's the new government

Britain has a new Prime Minister, Andy Burnham, and a new Chancellor, John Healey. And the bond market is watching them warily. Nomura titled the whole episode "Mr Un-credible?" for a reason.

Andy Chater's read on the change in style is the part to hold onto:

Under this administration, it feels like very much like the prime minister has taken back control… saying, I'm going to set the policy, you as chancellor figure out the details.

The worry, he explained, is that where former Chancellor Rachel Reeves treated the fiscal rules as her starting point, the new team seems to decide on the policies first and then look for "creative" ways to fit them inside the rules, which "makes the market maybe a little bit more nervous." Nomura's chief UK economist George Buckley was blunter about the constraint: there is essentially no headroom left in the budget, higher oil and interest costs have eaten what little margin existed, and he is "just a bit concerned that when we get that budget [likely in October], whether they're really going to stick to both the letter and the spirit of those fiscal rules."

Chater's broader point is why this belongs in an FX letter at all: since the Liz Truss episode in 2022, the UK gilt (government bond) market "can get itself extremely worked up about quite small amounts of money," and until investors see an actual Burnham-Healey budget, there will be "fears about whether there's some hidden nasties in there." One date to circle: in September the Bank decides how fast to shrink its bond holdings, a technical choice that could add to the supply of gilts the market has to swallow just as fiscal nerves are frayed.

The one dissent from the gloom came via The SharePickers Podcast's Justin Waite (Jul 31), channelling fund manager Neil Woodford's long-standing view that the Bank of England has simply been wrong, repeatedly. Woodford's tally: private-sector pay growth has fallen to 2.7% (a near-six-year low), June inflation came in at 2.6% versus the Bank's 3.1% forecast, and the economy grew 0.6% in the first quarter, double what the Bank expected. His conclusion is that UK inflation drops below 2% in the second half of next year and interest rates can fall below 3%, which he thinks would light a bull market. It's a minority view, but a coherent one, and it's the closest thing to a bullish sterling case anyone offered.

The debate

For once, both sides have real weight.

Side one: this rescue works, the dollar's fine, and the franc quietly becomes the world's funding currency

The bull-dollar / carry-keeps-paying camp isn't relying on hope. Its strongest points: the Bank of Japan held rates, so nothing structural changed; Japan's interest rates are still miles below America's, which keeps the carry trade alive; and the US has shown it will lean against a runaway yen, which caps the downside for anyone borrowing yen. Positioning backs the dollar too, Jim Bianco noted on Macro Voices' #543 (Jul 30) that large speculators are still holding dollar bets near a one-year high, and the dollar has technically broken above a 15-month range.

The most actionable expression of this side is Hardy's franc idea. With the yen now dangerous to short, because governments are defending it, he'd rather borrow the currency that pays even less and carries no such risk: the Swiss franc. On Saxo (Aug 3):

The very lowest rates out there, you actually have a carry trade in favour of the Japanese yen [that] would be in Swiss franc versus the Japanese yen… there's still an incredible valuation situation with Swiss franc versus the Japanese yen. And you're entirely lacking the carry problem if you're trading that one from the short side.

In plain English: borrow francs, buy yen, and you collect a small interest edge while betting two very cheap, very expensive currencies converge, without paying to be short the yen the way you would against the dollar.

Side two: this is a credibility crack, and the dollar's summer support was never solid

The bear-dollar case rests on three legs, each from a named voice.

The intervention is a confession, not a cure. That's Slok's and Englander's shared point above, spend the money, skip the reform, and the market comes back to the same trade in a few weeks.

US interest rates are rising for the wrong reason. Peter Boockvar's numbers on RiskReversal are the ones to keep. The US 10-year Treasury yield has climbed from about 3.94% in early March to 4.72%, roughly 80 basis points, with, by his read of the inflation-expectations market, no rise in expected inflation and no acceleration in growth. Jim Bianco framed the same anomaly even more starkly: the 30-year yield has risen about 118 basis points since the Fed started cutting rates in September 2024, something that has happened only once before, in the early 1980s. Bianco's mechanism is that markets no longer trust the Fed to control inflation, so:

Rates will continue to go higher until somebody deals with inflation… either the Fed panics a little bit and raises rates, they didn't do that, or the market takes yields up high enough to do it for the Fed.

If he's right, higher US yields stop being a reason to own the dollar and start being a warning about it.

The carry trade is a loaded spring. Boockvar warned the world is heavily leveraged (US margin debt is at a record 4.5% of the size of the economy), and RiskReversal's Guy Adami drew the direct line to two summers ago, when a soft US inflation print in July 2024 sent the dollar tumbling from ¥161 to ¥157 and touched off a cascade that spiked the fear gauge weeks later. His words: "history seems to be repeating itself." Note the anniversary, the 2024 unwind hit on August 6, exactly two years ago this week.

The contrarian outlier worth hearing

Steve Hanke of Johns Hopkins, on Hedgeye's Lunch Break (Aug 5), argues the entire premise is backwards. Everyone says Japan runs an easy, loose money policy because its interest rates are low. Hanke says that's a myth:

Monetary policy is not about interest rates. It's about changes in the money supply. And the money supply has been very anemic for many, many years in Japan.

By his math Japan's money supply is growing about 2.2% a year, well short of the ~6% he thinks it needs to hit 2% inflation, so the yen is weak because policy is too tight, not too loose. He also warned about Bessent as a government "big player" with unlimited firepower and no profit-and-loss constraint, which he thinks injects volatility rather than calm: "the market gods do not look kindly upon market manipulators… doing so from government seats." Treat it as the provocative minority view it is, but it's a useful reminder that the consensus "Japan is easy money" story is an assumption, not a fact.

Trades in play

  • Borrow francs, buy yen (short CHF/JPY). Hardy's cleanest idea, and the one that survives even if the yen rescue fails. You keep a small carry edge, you bet on two extreme valuations converging, and, crucially, you avoid being short a yen that the world's two biggest financial powers are now defending.

  • The euro above $1.15 is the tell. Hold the line and Hardy's own framework points to $1.18. Lose it and the old bearish euro case comes back. It's rare to get a level this explicit from a strategist before the event that tests it, and this week the event went the euro's way.

  • Fade a second yen rescue, carefully. Englander's point is that the US "doesn't want to spend a lot," and Japan's own ammunition is thinning. But the finance ministry, in Mariko Oi's telling, promised it "will not hesitate to carry out further coordinated intervention." So the near-term risk is a second round that squeezes yen shorts hard before fundamentals reassert, Nomura flagged that a follow-up could land within days. Patience beats front-running here.

  • Own foreign and emerging-market assets on a softer dollar. A weaker dollar lightens the debt load for emerging-market borrowers and, as FactSet data cited on RiskReversal's Warsh Out in Bonds (Jul 31) showed, favours US companies that earn abroad, the more-than-half-international names posted 73.6% earnings growth last quarter versus 23% for the domestics.

  • The out-of-consensus macro bet. On The Macro Trading Floor's Warsh Woke Up The Bond Vigilantes (Jul 31), Alfonso Peccatiello pitched "long euro, long long-dated bonds, short dollar" as the highest-reward trade of the next few months precisely because almost nobody owns it, with the honest caveat from Brent Donnelly that there's no obvious catalyst yet, and the euro and yen are "pretty much the same trade" right now, both just expressions of a falling dollar.

Read-throughs

  • Japanese bonds and the yen are pulling in opposite directions. The 10-year Japanese government bond yield is pushing toward 2.80%, per the Morning Market Briefing, historically extreme for Japan, while Saxo noted Japanese bonds hitting fresh cycle highs. Boockvar's warning is that what happens in Japan's bond market doesn't stay there: as the world's third-largest creditor nation, a genuine yen turn could pull Japanese savings home, out of Western bonds, and "that can lead to repatriation of foreign assets back to Japan."

  • The US long bond is the pressure everywhere. The 30-year Treasury yield hit about 5.27% (NAB), the highest since 2007. That's the number Bessent is really defending, and the reason Japan's troubles land on a New York mortgage.

  • Japanese stocks and the yen are one flow. The Nikkei jumped 4% on Friday as the yen surged. A stronger yen and a wobble in richly-priced global stocks are not separate events, they're two ends of the same leveraged money, which is exactly what made August 2024 so violent.

  • Emerging markets are the swing factor for the dollar's next leg. On LPL's Market Signals (Aug 4), the read-through was that a softer dollar eases the cost of dollar debt for emerging-market governments and companies, a genuine tailwind if the week's dollar move sticks.

  • Watch the fragility outside the majors. On The Macro Trading Floor, Peccatiello described how a single oil spike can suddenly make a dozen unrelated emerging-market trades move together, South Africa's central bank surprised by not hiking, and its long-term bond market "blew up completely," the currency down 2.5% in a day. In a leveraged, intervention-prone world, correlation is the risk.

  • The Swiss franc, honestly. There was no dedicated Swiss story this week, no comment from the central bank, nothing on exporters. What there was, repeatedly, is the franc turning up as the market's new funding currency of choice, the role the yen is becoming too risky to fill. The franc firmed against the dollar (to about CHF 0.809) and held roughly flat against the euro (about CHF 0.934). We'll flag it plainly rather than manufacture a narrative.

What changed

Last Thursday we wrote into three central-bank meetings with genuinely uncertain outcomes and a yen that had "quietly stopped falling." One week on, the picture has been rearranged by a single, historic act.

The specific change: the yen story flipped from a slow bleed to a government rescue. Japan went in alone on Thursday, and then, for the first time since 1998, the United States joined it on Friday, with Bessent funding the trade by selling euros. That took the dollar from about ¥164 to a low near ¥155. Alongside it, the euro did what it had been threatening to do for a month and cleared $1.15, opening Hardy's path toward $1.18. The Bank of England held and, through Bailey, explicitly talked the market away from hikes, leaving sterling a passenger. And Britain quietly acquired a new fiscal risk in the shape of the Burnham-Healey government, whose first real test, the budget, lands in October.

What has not changed is the thing underneath all of it. The Bank of Japan still didn't raise rates. The gap between Japanese and American interest rates, the fuel for the whole carry trade, is still enormous. Which is why nearly every professional this week, from Apollo's Slok to Standard Chartered's Englander, called the rescue a bridge rather than a cure.

And now the calendar takes over. The US jobs report is out Friday, with forecasters looking for roughly 85,000-100,000 new jobs. Markets are already pricing about a 77% chance the Fed hikes in September. A strong number would revive the dollar and test whether Friday's yen rescue was anything more than a very expensive speed bump. A weak one would hand the bear-dollar camp its catalyst. Either way, we'll know a lot more this time next week.