Newsletter · · Ashutosh Agarwal

Washington Bought Yen for the First Time Since 1998 - G10 FX & The Yen-Carry Complex - Week of August 13, 2026

G10 FX and the yen-carry complex for the week of August 13, 2026. The US Treasury joined Japan's biggest currency intervention in 15 years, buying yen for the first time since 1998, but the podcasts agreed it buys time rather than a trend, with everything now hinging on whether the Bank of Japan hikes in September.

G10 FX & The Yen-Carry Complex

Week of August 13, 2026: Washington Bought Yen for the First Time Since 1998

A quick note before we start. Most weeks the yen is a slow-burning story you keep half an eye on. This week it was the whole show. The United States just did something it has not done since the 1998 Asian financial crisis, it stepped into the currency market to help Japan prop up the yen. Nearly every macro podcast worth listening to spent its airtime picking apart what happened, whether it will hold, and what breaks if it doesn't. So this issue leans hard into Japan and the carry trade, because that is honestly where the conversation was. Euro and sterling barely got a mention, I'll tell you what little there was rather than pretend otherwise.

Here is the one thing to hold onto: intervention buys time, not a trend. Every serious voice this week agreed the yen only truly turns if the Bank of Japan actually raises interest rates. Everything else is a debate about what happens while we wait for September.

TL;DR

  • The event: Around July 30, Japan launched its biggest currency intervention in 15 years, selling US dollars to buy yen, and the US Treasury quietly joined in. Estimated size over two days: up to ~$85bn, the largest two-day intervention on record outside the 2011 Fukushima aftermath (Goldman Sachs).
  • The move: Dollar-yen (USD/JPY, how many yen it takes to buy one dollar; a higher number means a weaker yen) fell from about ¥164, a 40-year low for the yen, to roughly ¥155, then drifted back to close last week near ¥157.50. The market has already clawed back more than a third of the drop.
  • The consensus: Intervention alone won't fix it. The yen only stays strong if the Bank of Japan hikes in September. Odds of a September hike have jumped to 50-65%.
  • The surprise: The carry trade, borrowing cheap yen to buy higher-yielding assets, barely flinched this time, in sharp contrast to the August 2024 blow-up. Global carry baskets fell only ~1-2%, versus ~7% two years ago (JPMorgan).
  • The quiet threads: The Swiss franc keeps grinding higher and is quietly becoming the market's new funding currency of choice. Euro and sterling generated almost no dedicated commentary this week.
  • Dates that matter: end-August (Japan reveals the official intervention total), and September 17-18 (the next Bank of Japan meeting).

What's New: The Intervention, Explained

Start with what actually happened, because the mechanics are unusually strange and they tell you how nervous policymakers really are.

On Goldman Sachs Exchanges, Goldman Sachs Research strategist Karen Fishman laid out the scale. On July 30 Japan sold dollars and bought yen in its largest FX intervention in 15 years, an estimated up to $85bn over two days, the biggest two-day effort on record outside October 2011. And crucially, the US joined, the first joint US-Japan action since 2011. Why does a weak yen bother Washington? Because, as Fishman put it, "a weaker, more volatile yen should mean a stronger, more volatile dollar," and that kind of instability spills across global markets.

Her verdict on whether it works was blunt:

"It's not a sustainable fix that ultimately just buys some time... if there's no subsequent policy shift, those existing pressures on the currency tend to reemerge."

She would know the pattern: Japan intervened alone in April and May of this year, and within a few months the yen was back at 40-year lows.

Her colleague Praneet Shah, who runs FX options trading at Goldman, added the market-plumbing detail that matters for anyone watching a screen. The level that did the damage was ¥158, the 200-day moving average, a line a lot of traders watch. Once dollar-yen broke below it on Thursday and Friday, leveraged funds were forced to bail:

"If dollar-yen just suddenly gaps 3% lower in a given day, that's your entire annualized carry just wiped out in one move. So... you really do end up needing to stop out."

Government data backed him up: it was the fourth-largest reduction in yen positioning in 20 years. And yet Shah said his own client flow was "surprisingly mixed", half his clients want to bet on more yen strength (targeting ¥150), half just want to buy the dip, convinced nothing structural has changed. That split is the whole story of the week in one sentence.

Two more nuggets from the Goldman conversation that move numbers:

  • Capacity is not the constraint. Japan has about $1 trillion in FX reserves, roughly $200bn of it in cash, "enough to do another couple rounds," per Fishman. A Fed lending facility (more on that below) could unlock the rest.
  • Watch US inflation. Shah pointed out that in July 2024 the most effective round of yen-buying landed right on a soft US inflation print. A US price miss makes the dollar sag on its own and does the intervention's job for free.

The weird part, how the US did it. This is where the podcasts got genuinely interesting. On Odd Lots, the Council on Foreign Relations' Brad Setser walked through it: the New York Fed, acting for the Treasury, didn't sell dollars, it sold euros to buy yen. The theory, echoed on several shows, is that Treasury Secretary Scott Bessent didn't want to be photographed selling the dollar. (There was, in fact, a photographed to-do list on Bessent's desk that read "buy JPY, $5-10bn." Subtle.)

Veteran FX strategist Marc Chandler was scathing about the optics on The KE Report. He noted the US used its Exchange Stabilization Fund, sold euros, and never even told the European Central Bank, "a break of diplomatic protocol." His read on the price action was precise: dollar-yen bottomed near ¥155 (the exact floor from the April-May episode, which held again), bounced to ¥158.60, and closed the week around ¥157.50:

"The market has retraced a bit more than a third of the losses driven by the central banks... the market seems to be still searching for their pain threshold."

The plumbing everyone suddenly cares about. On InvestTalk, Luke Guerrero explained the acronym that went from obscure to front-page in a week: the FIMA repo facility. In plain terms, it lets a foreign central bank hand its US Treasury bonds to the Fed and get dollars back short-term (up to $60bn a day), instead of dumping those bonds on the open market. Bessent reportedly wants it upsized, because Japan holds roughly $1.14 trillion of US Treasuries, and nobody wants Tokyo selling $80bn of them and pushing US borrowing costs up. Peter Boockvar, on Mining Stock Daily, drew the uncomfortable conclusion: US Treasuries "are no longer just a buy-and-hold thing in the eyes of foreigners... potentially a source of funds."

The Debate: Does It Work?

Here both sides genuinely showed up, so let's steel-man each.

The constructive case, "this can hold, and carry still pays."

The most important point of the week is that the carry trade did not blow up. On At Any Rate (JPMorgan), strategist Antonin Delair put hard numbers on it. In the week of the intervention, global carry baskets fell only 1.2-2%. Compare that with late July to early August 2024, when the same baskets fell 7%, and double digits over a wider window, with stocks crashing at the same time. This time:

"The move in yen this time was a lot more idiosyncratic with limited spillover to other low yielders like the franc, and the high-yielding bloc generally held up, especially LatAm."

His scorecard: the Global Real Carry Basket is still up 11% year-to-date, the risk-adjusted version up 7%. His view is "still bullish and unchanged", and he argued the case is arguably stronger, because carry survived a genuinely toxic mix (an equity wobble, an oil drop, the intervention, and a weak US jobs report) and still only lost ~1%.

Brad Setser gave the fundamental version of the bull case on Odd Lots: the yen has "overshot," Japan's current account is a healthy 5% of GDP, and long-term US and Japanese bond yields have actually converged, meaning that on the long-run rate gap, the yen should be stronger, not weaker. His bottom line:

"If the Bank of Japan is raising rates faster than the Fed from this point on, I actually do think this will work."

The skeptical case, "a Band-Aid on a bleeding patient."

The bears don't dispute the intervention happened; they dispute that it changes the math. The cleanest statement came from Michael Gayed of Lead-Lag Media on The David Lin Report, who called the August 2024 unwind before it happened. His argument is simple: the carry trade is still profitable even after the bounce, so money will keep piling back into it and drag the yen lower again:

"Independent of the intervention, the carry trade is still profitable, even at these levels... if the yen were to retrace its move, which is what I expect, then I think you're going to have a real, real panic."

He also flagged the trap Japan is in: the only durable fix is aggressively higher rates, but higher rates blow a hole in Japanese banks that hold low-yielding government bonds as collateral, "Japan's entire market is insolvent," in his (deliberately provocative) phrasing. And a warning worth writing down: "Every single equity crisis is preceded by a currency crisis."

On the same show, host David Lin assembled the data that makes the bears nervous. Speculators were still net short 163,000 yen contracts as of July 28, that's 89% of the peak heading into the August 2024 crash. Japanese government bond yields have surged (the 40-year above 4% for the first time ever, the 10-year at 2.8%, the highest since 1997), and Japan's debt is now forecast at 187.6% of GDP. The eerie detail: the Federal Reserve's latest financial stability report doesn't mention the yen, Japan, or the carry trade even once.

Where the two sides actually meet: September. Almost everyone, bull or bear, agreed the yen's fate runs through the Bank of Japan meeting on September 17-18. MUFG's Derek Halpenny, on The MUFG Global Markets Podcast, called the US role "somewhat half-hearted" (no official statement, sold euros not dollars, framed as a "reserves reallocation") and stressed that fundamentals, not intervention, mark the real turns. But if the BoJ hikes in September and again in January 2027 while the Fed sits still, he sees dollar-yen falling to the "low 150s into the maybe high 140s next year." Peter Boockvar was more emphatic: the BoJ "has to follow through with a rate hike in September... in December. They have to", and noted Governor Ueda's hawkish press conference has already pushed September hike odds to about 50%, up from 25%.

One dissent worth respecting: JPMorgan's own year-end target, per Pat Locke, is still ¥164, i.e. a weaker yen, because "intervention doesn't ultimately correct the more fundamental issues... the trend is ultimately for a weaker yen, not a stronger one."

Trades in Play

Only where the podcasts actually pointed to an expression:

  • Play yen strength through the cross, not the classic pair. Praneet Shah (Goldman) noted clients have shifted to euro-yen (EUR/JPY) rather than dollar-yen, because ¥187.50 in euro-yen is the level that triggered the intervention and the US was clearly watching that cross too. Targets floated: ¥150 in dollar-yen (a 5% move) for the strength camp.
  • Options still price a gap. Shah flagged that 2-week to 1-month yen call options still carry a big risk premium, the market is paying up for protection against a sudden yen spike. That's a signal, and a cost, if you're short the yen.
  • The carry hedge is not what you think. Luke Guerrero (InvestTalk) made the sharpest practical point: shorting the yen to hedge is a crowded trade. The real hedge is "owning things that don't need the carry trade to function, cash-generating businesses, shorter-duration credit, some actual cash." And his reminder: "If you own US stocks, you have a yen carry position, whether you signed up for one or not."
  • Fund in Swiss, not yen. JPMorgan's James Nelligan has been "bearish Swiss all year" and thinks funding positioning migrates from the yen to the franc as intervention makes yen-funding riskier, with the added comfort that "you have a central bank that's on your side with the SNB."

Read-Throughs

The Swiss franc is quietly the new funding currency. With the yen now a policy battleground, JPMorgan's Delair and Nelligan both see funding shifting toward the franc, which is one reason the franc keeps grinding to multi-year highs. You can see the pain at the company level: on Openwork: Inside the Watch Industry, the hosts noted Swatch Group grew sales +8.5% but its operating margin was a razor-thin 1.7% ("living on the wire"), with management blaming currency, the franc "continues to be relatively strong... acting to some extent as a reserve currency more and more." Tellingly, richer rivals didn't complain: Richemont group sales were up 20% and LVMH watches/jewelry up 9-11%, neither flagging FX pain. A strong franc squeezes the weakest exporter first.

Euro-yen and the euro's cameo. The euro's only real appearance this week was as the instrument of the intervention, the US sold euros to buy yen. Marc Chandler (KE Report) added a fundamental footnote: on the OECD's purchasing-power measure, "the euro is the second most undervalued currency after the Japanese yen." No dedicated ECB, Bund-spread or French-politics discussion surfaced this week.

Emerging-market carry held. The high-yield end of the carry chain, the Mexican peso and Brazilian real, was resilient this time, unlike 2024 when they got dragged down with everything else. Worth noting the caution flag: JPMorgan and the Bank for International Settlements both observe that carry-to-risk on those currencies against the yen peaked earlier this year, which historically hints at rising risk that the funding currency (the yen) snaps back.

Stocks are hostage to the yen. The August 2024 memory hangs over everything: a surprise BoJ hike plus a soft US jobs number sent the Nikkei down 12.5% in a single session (its worst since 1987) and pushed the VIX above 60. Guerrero's warning is the read-through, a September hike signal could rhyme with that, and positioning today (89% of the 2024 short-yen peak) is the amplifier.

What Changed

The genuinely new development is not a level, it's a precedent. The US Treasury has now, for the first time since 1998, put itself on the buy-side of the yen, opened the door to lending Japan dollars against its Treasury holdings, and signaled it cares about Japanese financial stability enough to act. Whether that's savvy crisis management or, as the skeptics fear, an admission that the Treasury market isn't as deep as advertised, is the debate that will define the next month. Everything now points to one date: September 17-18. If the Bank of Japan hikes, the bulls are probably right and ¥150 is in play. If it blinks, the ¥164 lows come back into view, and the 89%-of-peak short-yen crowd finds out whether 2024 was a one-off or a rehearsal.